iE DARGAIN 1 HEORY 


m 


■niSlHMS^H 


■ "-\ 


lb Davidson 




The Bargain Theory 



of Wages 



A Critical Development from the Historic 
Theories, together with an Examination of 
certain Wages Factors : the Mobility of 
Labor, Trade Unionism, and the Methods 
of Industrial Remuneration 



/ By 

John Davidson, M.A., D. Phil. (Edin.) 

Professor of Political Economy in the University of 
New Brunswick 




^-1 



V" 



New York and London 

G. P. Putnam's Sons 

®l^£ l^niclurbothcr ^ress 

1898 




IWO COPIES 1^tC£lVE0 



\ ^OTJ^^ 



'^S \^'^ 



Copyright, i8g8 

BY 

G. P. PUTNAM'S SONS 
Entered at Stationers' Hall, London 



Ubc Tknicfterbocber ipress, IRew Uoeft 






PREFACE. 

SOMETHING like an apology seems due from a 
writer who ventures to add an essay on the 
Wages Question to the already enormous number 
of essays and treatises on that well-worn subject ; 
but the writer has found the lack, for the purposes 
of teaching advanced students, of such a book as 
he has endeavored to prepare. There is no treatise 
presenting in a fairly compact form the problems 
of wages which it seems desirable to bring before 
the attention of such students. The systematic 
treatises and text-books in economics necessarily 
give but scant treatment to the problem of the 
evolution of the theory of wages; and the mon- 
ographs on the wages question are, in general, too 
polemical and one-sided to be suited even for ad- 
vanced class work. 

The present essay is the outcome of the attempts 
of the writer, during five years, to analyze the wages 
question, historically as well as theoretically. He 
began with the theory presented by the late Presi- 
dent Walker in his Wages Question, but was soon 
forced to give as a supplement an exposition of the 



iv Preface. 

history of wages theory ; and gradually came to find 
that the theories were not mutually antagonistic but, 
in a sense, complementary. A study of the Aus- 
trian theory of value showed him how it was possible 
to reconcile these divergent theories ; and The Bar- 
gain Theory of Wages is the result. 

The comparative absence of references is in part 
due to the fact that quotations, etc., were inserted 
in his lecture notes during vacation study, and that 
he had no opportunity at the time of writing to 
verify them. He has, therefore, judged it best to 
omit such references as he could not verify. The 
woes of a scholar in exile he had better keep to him- 
self; but the inadequacy of the historical parts of 
the essay, of which the writer is fully conscious, may 
be partly excused in one who is some four hundred 
miles from any library even half as good as his own. 

My obligation to Prof. Taussig's Wages and Capi- 
tal in the chapter on the Wages Fund, and generally 
to Mr. Cannan's Production and Distribution, and to 
Dr. Smart's Stiidies iii Economics, is great and obvi- 
ous ; and I owe many obligations which it is not 
possible so definitely to acknowledge. Acknowledg- 
ment is due to the courtesy of many correspondents, 
personally unknown, who have taken much trouble 
in obtaining information for me; and in particular 
to Mr. Ochiltree Macdonald and the Hon. Robert 
Drummond of Nova Scotia ; to Mr. Stavart of St. 
John's, Newfoundland ; to Miss Jean Davidson of 
Edinburgh ; to Prof. Nicholson, who read the essay 
in manuscript and by many helpful suggestions en- 



Preface. v 

abled me to correct some of the disadvantages of 
isolation ; to my colleague, Prof. Stockley, for assist- 
ance in preparing the manuscript for the press ; and 
to my wife, who drafted the diagrams and assisted 
in the preparation of the index. 

The University of New Brunswick, 

Fredericton, N. B., December, i8gy. 




CONTENTS. 



CHAPTER I. 
The Subsistence Theory . 

CHAPTER n. 
The Wages-Fund Theory . 

CHAPTER III. 
The Productivity-of-Labor Theory 

CHAPTER IV. 
The Bargain Theory of Wages 

CHAPTER V. 
The Mobility of Labor 

CHAPTER VI. 
The Mobility of Labor (Continued) . 

CHAPTER VII. 
Trade-Unions as a Wages Factor 



PAGE 

I 



41 



79 



127 



174 



199 



254 



CHAPTER VIII. 
The Methods of Industrial Remuneration 

AS A Wages Factor ' 281 

vii 



THE BARGAIN THEORY 
OF WAGES. 



CHAPTER I. 



THE SUBSISTENCE THEORY. 

THE great historical theories of wages correspond 
in their order and in their character with the 
stages in the development of labor from the disap- 
pearance of slavery and serfdom to the rise of real 
freedom. Although legal slavery and serfdom had 
disappeared in England centuries before the Indus- 
trial Revolution, there was still sufficient survival of 
its spirit to incline men towards a view of wages 
which is true, in its full extent, only of slave labor. 
Down to the beginning of the present century there 
were legal restrictions on the movement of laborers 
from one parish to another; and colliers in Scotland 
were even then transferred with the pits in which 
they labored. The general conditions of dependence 
were such that the economic effects did not differ 



2 The Bargain Theory of Wages. 

very much from the actual effects of legal slavery. 
The effect of the Industrial Revolution was gradually 
to change all this. The number of hired laborers 
increased every year; and the pressure of competi- 
tion qualified the supremacy of the employer. His 
domination of the industrial world became merely a 
predominance. The power of the employer was still 
indeed very great, and he was able to dictate al- 
most any terms he pleased to those who depended 
on him for employment; but the development of 
Trade Unionism and the growth of the political 
power of the working classes brought a greater 
change. The legal restrictions on the movements 
of the laborer had disappeared, and the progress 
towards democracy gave the laborer strength to 
treat with his employer as with an equal and not 
with a superior. The centre of political gravity had 
shifted, and, despite belated attempts at feudal and 
despotic government, the balance of economic power 
was with the employees rather than with the em- 
ployers ; and labor became the predominant partner. 
The working classes had been the first to learn the 
secret of open combination, and from them the em- 
ployers have learned, or are learning it. The tacit 
combinations of employers to keep down wages, to 
which Adam Smith referred, had broken down 
before the stress of competition of master with 
master; and when competition was discovered to be 
suicidal, the employers openly associated and com- 
bined, to meet the combinations of the working 
classes and to make their own power effective. They 



Wages TJieories Correspond to Labor Conditions. 3 



quickly recovered from the unnecessary panic into 
which the development of Trade Unionism had 
thrown them, and quickly recovered much of their 
lost ground. The condition of industry to-day is 
one of opposing combinations of masters and men ; 
and an armed peace as the result of negotiations. 

The development of the theories of wages corre- 
sponds, in a certain measure, with the evolution of 
industrial freedom. The theories, it is true, follow 
the development of the social phenomena afar off; 
and we must not strain the parallelism. The earliest 
theory is the doctrine that wages are determined by 
the cost of the subsistence of the laborers ; and it is 
obviously based on a real or assumed analogy be- 
tween wage labor and slave labor. It assumes the 
absolute supremacy of the employer, though his 
supremacy is created by the self-imposed degradation 
of the employees under the tyranny of the sexual 
instinct. The change in the position of the em- 
ployer from domination to mere predominance is 
followed by the development of the Wages-Fund 
Theory, in which the measure of the wages is the 
intention of the capitalist employer. A certain 
measure of freedom is, in this theory, accorded to 
the laborer. He can, at least, raise his wages by 
exercising self-restraint and restricting his numbers; 
but the employer is still the dominant factor in the 
wages problem. The Wages-Fund Theory gave 
place to the Productivity Theory, in which the deter- 
mination of wages is apparently regarded as almost 
entirely within the laborer's own power. Wages are 



4 The Bargai?i Theory of Wages. 

paid according to the efficiency of the laborer, and 
the employer has almost nothing to do with the 
wages question but to pay the wages. The earlier 
positions are reversed. The laborer becomes the 
residual owner of the product — for production has 
become, explicitly, the co-operation of capital with 
labor. This theory, however, the acceptance of 
which dates from the year of Mill's recantation 
of the Wages-Fund Theory, under the influence of 
his growing interest in the growing power of Trade 
Unionism, greatly exaggerates the independence of 
the laborer's position. It takes no account of the 
combinations of employers, tacit or avowed ; and 
the influence of such combinations in the determina- 
tion of wages cannot be ignored. The theory of 
wages, consequently, is tending to change to a form 
in which the supremacy of no one party in the wages 
transaction is assumed. Neither the employer, as 
in the earlier theories, nor the emlpoyee, as in the 
latest, can be regarded as the sole determiner of 
wages. The employer is not a donor, nor is the 
employee the owner and dictator of wages. Em- 
ployer and employed are opposed to each other 
as bargainers in a market where, through various 
causes, their forces are about equal. Wages are to 
be regarded as determined in the way in which all 
bargains are concluded— partly, by the estimate 
which each party to the bargain has formed of the 
value of the subject of the bargain, and, partly, by 
the comparative strength and knowledge of the 
bargainers in bargaining. All the earlier theories 



The Plan of the Essay. 5 



attempt to establish one determining principle of 
wages according as they recognize the supremacy 
of the employer or the supremacy of the laborer. 
This theory, based on the phenomena of organiza- 
tion of employers and employed in combinations 
of approximately equal strength, puts forward two 
determining principles, or, more accurately, asserts 
that the wages of labor will be determined between 
two estimates as limits. 

The object of this chapter, and of the two suc- 
ceeding, is to establish, by means of a critical ex- 
amination of the earlier theories, the theory of wages 
as a bargain ; and the result will, it is hoped, demon- 
strate, in the fourth chapter, that this eclectic theory 
embodies all that is of permanent value in the earlier 
theories. The doctrines of the prevailing philosophy 
have convinced all men that no great movement can 
be entirely wrong; and assuredly no great theory 
can be utterly rejected. We shall find that the sub- 
sistence theory provides one determining principle 
and the productivity theory another; but, instead 
of choosing one or the other, and claiming half 
the truth as the whole truth, we shall find that 
the subsistence theory gives us the seller's estimate 
of what he has to sell, and the productivity theory 
the buyer's estimate of what he enters the market to 
buy ; and that the Wages-Fund Theory, in one of 
its propositions, states the force which determines 
where, between those limits, actual wages are de- 
termined, and, moreover, gives the outlines of the 
complete theory. 



6 The Bargain Theory of Wages. 



The first important and scientific theory of wages 
is that the reward of labor is determined by the 
cost of subsistence of the laborers. This theory has 
been called by various names — the Theory of Nat- 
ural Wages, the Ricardian Theory, the Iron Law of 
Wages, the Standard-of-Comfort Theory, and the 
Doctrine of a Living Wage ; but no one of these 
labels is quite satisfactory. \\\ adopting the title of 
the Subsistence Theory, we adopt a title which is 
explanatory of the common element in all the phases 
of the theory, and yet does not gratuitously invite 
criticism, as the Iron Law of Wages does, for in- 
stance. 

The Subsistence Theory has gone through some- 
what remarkable variations; but the change has 
been rather in the sentiments of the advocates than 
in the substance of the theory. The earliest writers 
and, on the whole, Ricardo himself, to say nothing 
of the socialists who claim to be Ricardo's true seed-, 
have interpreted the law very pessimistically. The 
socialists have denounced the iron law as the crying 
evil and iniquity of our present social system ; but 
the modern advocates of the theory seem to regard 
the law as opening a door of hope for labor. The 
change is not in the substance of the doctrine. Even 

o 

Ricardo, at times, as we might show, regarded the 
cost of subsistence as a variable minimum, not neces- 
sarily coincident with the cost of physical life. His 
passing admissions have been taken up and amplified 
by the modern adherents of the theory till the theory 
itself seems transformed. Yet Mr. Gunton, the 



The Variatio7ts in the Subsistence Theory, 



most ardent, as he is the most scientific, of the opti- 
mists, does not claim that wages should vary with 
every, the slightest, variation of the standard. The 
theory has changed its sky but not its nature. The 
difference between the early and the later forms of 
the theory is due to the generally changed attitude 
towards labor questions. Ricardo, writing at a time 
when the first and most lasting impression made 
by Malthus was one of the most important facts in 
the world of economic theory, was pessimistic and 
regarded wages as tending naturally to fall as low as 
possible, Mr. Gunton, and the self-constituted 
spokesmen of the modern labor movement, writing 
after half a century's progress of the working classes 
and steady rise of wages, regard the standard of 
subsistence as a method of raising wages. But the 
essence of the theory is in both cases the same. 
The value of labor is determined from the side of 
labor alone. The sole determinant is the cost of the 
commodities on which the laborer subsists ; whether 
this cost be regarded as determined by the rapacity 
of the capitalist (as the socialists say), by the tyranny 
of the sexual instinct, or by the firmness with which 
the working classes maintain their customary or as- 
sumed mode of life. The force which operates to 
make the cost of subsistence the standard of wages 
differs according to the standpoint of the theorist; 
but, in all cases whatever, the substance of the 
theory is the same. 

Adam Smith, and his successors, treated the 
theory of distribution as if it were only a branch of 



The Bargain Theory of Wages. 



the theory of production. In wages as wages they 
had little interest. The chapter in the Wealth of 
Nations dealing with wages is the first of four chap- 
ters discussing the component parts of price. Wages 
were thus regarded mainly as an element in the cost 
of production ; and it was natural that, when the 
reward of labor was, for the moment, considered in 
itself, the general point of view should be retained 
and the discussion of wages become a discussion of 
the component parts of the cost of production of 
labor. His treatment of wages is fruitful of sugges- 
tions; and germs and illustrations of all the later 
theories may be found within the narrow limits of 
that one chapter; but the natural development was 
in the direction of a theory of wages which finds the 
explanation in the cost of production of labor. 

No one has ventured to advance a naturalistic in- 
terpretation of the cost of production of labor. The 
phrase has always been interpreted in terms of the 
cost of the commodities necessary for maintaining 
life. The cost of production of a machine — and 
labor, from this point of view, is only a more costly 
because a more complex machine — is, firstly, the 
cost of the fuel and the other requisites of its opera- 
tion, and, secondly, the reserve set aside against de- 
preciation for renewing or replacing the machine 
when it is worn out. These two items in the case 
of labor are the cost of maintaining the laborer in 
working condition, and the cost of rearing new sup- 
plies of labor to take the place of the old when, in 
the course of nature, that is worn out or superan- 



Wages as an Element of Cost. g 

nuated. But the analogy from machinery seems to 
lead us too far. The reserve set aside for replacing 
and renewing a machine remains in the possession of 
the owner; but the new supplies of labor, for the 
provision of which allowance, according to the 
theory, must be made, are not the property of the 
employer except under the conditions of slavery. 
The criticism, therefore, raised against the theory 
on this point is not without justification. The 
analogy is pressed too far to the neglect of the obvi- 
ous fact of the difference between persons and things. 
The difference is essential. There is no necessity 
that an employer should have such a tender regard 
for the interests of employers of the next generation 
as to make him pay higher wages to maintain the 
supply of labor and replace the labor which is worn 
out. Most employers are content that there should 
be profit in their time, and quite willing to be as 
Irish as Sir Boyle Roche in their disregard of pos- 
terity. If the early economists had interpreted the 
law in the same way as the socialists, who have 
forcibly entered into their labors, the objection that 
the theory was inconsistent would be perfectly 
sound. The cost of rearing and educating a family 
cannot strictly be included within a minimum of 
subsistence. If this item is included in the cost of 
production of labor, we cannot rightly speak of a 
minimum of subsistence. But for the early econo- 
mists it was not the rapacity of the employer but 
the strength of the principle of population which 
made the cost of subsistence the measure of wages; 



10 The Bargain Theory of Wages. 



and the principle of population, not unnaturally, 
admits the inclusion, within the minimum, of an 
amount sufificient to prevent the race of laborers 
from becoming extinct. 

There can be no manner of doubt that, in the long 
run, wages are sufificient to cover both the cost of 
maintaining the laborer and the cost of rearing the 
new supplies. If industry is to continue, and in- 
dustry does continue, both items of the cost must 
be met, and both items, therefore, are met. Wages 
are sufificient to cover the cost of production, but 
are they more than sufficient ? Is there a surplus 
accruing to labor as a whole, over and above the 
amount necessary to cover the cost ? The question 
is often rendered more difficult of answer because of 
a failure to make an obvious distinction. We are in 
the habit of estimating wages simply in gross, 
whereas rent and interest are net returns. The 
absolute necessity that the capital expended in pro- 
duction should be replaced is at all times asserted ; 
and, over and above the capital sum replaced, it has 
generally been recognized that a payment should be 
made for the use of the capital, or (as we may say 
without prejudice) as the reward of abstinence. The 
returns of capital, however, are not estimated as a 
gross, but purely as a net return. Interest is the 
return to capital, and that is not said to be 103 or 
no, but three or ten per cent. Over and above the 
capital sum a further payment is made. Rent is 
also a purely net return. The natural properties 
of the soil remain practically intact ; and the land- 



Waercs a Gross Return. 1 1 



owner's share is regarded, not as his land returned 
to his keeping in its original condition plus the rent 
he receives for its use, but simply as the rent which 
he obtains. In the case of wages, the treatment is 
different. Wages are treated as if they were a net 
return comparable in some way with the three or 
the ten per cent, of interest. No distinction is 
made, as in the case of capital, between the refund- 
ing of the energy expended and the payment for the 
use of that energy. Both are lumped together, and 
the only attempt made to distinguish them is in the 
theory and practice of taxation when a minimum is 
exempted. Yet the laborer, as we may say, by con- 
venient analogy, has invested his capital fund in pro- 
duction just as really as the capitalist has his; and 
there is the same necessity that this expenditure 
should be refunded, if production is to be economi- 
cal. This expenditure is the energy spent in labor 
and includes more than mere physical exertion. 
The energy expended varies in kind as well as in 
degree ; and the energy refunded must be an exact 
equivalent of what is expended. The energy ex- 
pended by an artisan in a higher skilled trade re- 
quiring a large amount of attention, or the nervous 
energy expended by a common school teacher, are 
different in kind as well as in degree from that ex- 
pended by a common day laborer; and the amount 
refunded must vary accordingly. The return to 
labor must, at least, be such as will enable each 
worker to start his work on the morrow in the same 
condition as he started the previous day or the pre- 



12 The Bargain Theory of Wages. 



vious week. The standard of his efficiency must be 
maintained. It is true that, just as capital may be 
so invested that it not only does not receive a net 
return in the shape of interest but may itself not be 
refunded, labor may be so employed, by itself or in 
the service of another, that the reward of labor is 
not sufficient to replace the energy expended. In 
this case the result is the degradation of labor. On 
the whole, and in the long run, the wages of labor 
are sufficient to refund the energy expended, but are 
they ever more than sufficient ? Does labor, like 
capital, obtain a surplus, or a net return ? Labor 
has the same right as capital has (if we may speak 
of right in either case) to demand a surplus return, 
over and above the refunding of the energy ex- 
pended; and, if labor does not receive a net return, 
corresponding to interest, it must be because there 
is something special in the conditions of labor which 
prevents this result. 

The advocates of the subsistence theory have 
generally contended that labor must and does obtain 
a return sufficient to refund the energy expended ; 
but they have not always gone on to ask whether 
labor receives anything over and above.* Interest, 
according to the popular view, is necessary because, 
without it, capital would not be saved and invested 
in sufficient quantity to maintain industrial efficiency. 
Is labor entitled to demand a similar net return, or 

* Adam Smith's suggestive analysis of the standard of subsistence 
(see note, p. 23) was not taken up until the theory was being tried, to 
be found wanting. 



Is There a Net Return to Labor ? 13 



are there forces at work which enable the employers 
directly, and society indirectly, to disregard this de- 
mand of labor ? Now labor involves disutility as 
fully and as certainly as saving involves abstinence 
and self-denial. The laborer has, it is true, less to 
gain and more to lose by refusing to work, than the 
capitalist has in not abstaining from consuming his 
wealth. The laborer is dependent for his life on his 
working; but the capitalist need only not practise 
self-denial. However, since labor involves disutility, 
simply to replace the energy the laborer has ex- 
pended will not always be sufficient. The laborer is 
not a machine, but a human being actuated by indi- 
vidual and personal motives and feelings; and he is 
little likely to spend himself simply that his expenses 
may be refunded. Individuals may be so inclined ; 
but the great mass of men value themselves more 
highly. If there is not a net return in cases where 
the disutility of labor, from whatever cause, is great, 
the laborer will content himself with the expenditure 
of but little of his energy. In order to obtain the 
best results, it will always be found necessary that 
something more than the m.aintenance of the status 
quo ante should be assured. There are those who 
must save and those who cannot help saving, and 
for them the net return to capital need not be 
high; but a certain rate of interest has been 
found to be necessary to call out that amount of 
abstinence from the immediate utilities in consump- 
tion as will enable industry to be carried on and ex- 
tended. So although all laborers (or nearly all) 



14 The Bargain Theory of Wages. 



must labor to continue living, a net return to labor 
is necessary to get the best industrial results from 
the laborer. 

The early advocates, at least, of the subsistence 
theory declare, in effect, that a net return to labor 
is unnecessary and, in the long run, improbable. 
The glory of going on and still to be, is, in their 
view, a sufficient incentive to overcome the disutility 
of labor. The necessity of living provides a strong 
enough incentive. The laborer must live and to 
live must be prepared to sacrifice his comfort. He 
has no reserve on which to subsist ; and the stern 
necessities of daily life compel him to work for that 
which is just sufficient to enable him to subsist. 
Should he, by the benevolence of his employer, or 
through the force of public opinion, or from acci- 
dent, obtain a higher reward than is necessary to 
enable him to subsist, he will either labor less, or he 
will indulge himself in such a way as eventually to 
bring down his enhanced wages to an amount which 
simply enables him to continue. Among semi- 
civilized and indolent races, work will cease when 
enough has been earned to provide subsistence; 
among civilized people, the effect of a surplus over 
the cost of subsistence will be to increase competi- 
tion till wages fall to the subsistence limit. The 
wages of going on may be very much higher in one 
country than in another. The intensity of labor 
differs in different countries; and consequently a 
greater or less amount is required to replace the 
energy expended. Wages must, in the long run, 



Labor of Varying Intensity. 1 5 



be sufficient to cover the expenditure, but, in the 
long run, they need not be more than sufficient ; for 
the necessity of making a living is a force strong 
enough to counterbalance the disutility of labor. 

The gradual change in the subsistence theory of 
wages was due, in part, to the fuller recognition of 
the fact that labor is of varying degrees of intensity 
and hence involves a greater or less expenditure of 
energy. Ricardo and the early exponents seemed 
to regard all labor as being of one quality and hence 
as involving the expenditure of equal amounts of 
energy. Wages, therefore, were taken to be the 
equivalent which was necessary to replace this 
energy. The actual variations of wages were ex- 
plained by means of the distinction between market 
wages and natural wages. Except in a theoretical 
case, wages were determined by the amount of com- 
modities necessary to sustain the life of the laborer; 
and this amount was not considered as varying from 
individual to individual, but as determined abso- 
lutely by constant physiological conditions. The 
theory, at this stage, takes practically no account of 
the fact that the expenditure of energy is not always 
an expenditure of bodily force. Yet there is no 
common term which will enable us to compare the 
energy severally expended say by a school teacher, a 
newspaper compositor, and a dock laborer. Each 
may be correspondingly equipped for, and efficient 
in, his work; and at the end of a day's labor each 
may be correspondingly worn out. To enable them 
to beg-in the morrow's work with their former effi- 



1 6 The Bargain Theory of Wages. 



ciency, each requires a different kind of treatment 
and recuperation. The minimum of subsistence 
which will effect this result is so different in each 
case that to use the term physical minimum, as 
applying indifferently to all three, is to darken 
counsel by words without knowledge. The laborer 
will probably require rnore food than the other two. 
The workingman is a better customer to the grocer 
than a professional or semi-professional man with 
twice the salary of the workingman. Yet the fact 
that a teacher eats less, but is more fastidious about 
what he eats, affords us no warrant for declaring 
that the greater part of his expenditure could be 
dispensed with because his physical minimum, esti- 
mated in pounds avoirdupois, is less than the physi- 
cal minimum of a dock laborer. So, even if we take 
the standard of subsistence as a physical minimum 
including no surplus, we must yet admit that the 
physical minimum will vary according to the nature 
of the occupation. The only real measure there can 
be of a minimum of subsistence is the amount of the 
necessaries, comforts, and luxuries of life which is 
necessary to enable each worker to begin each day's 
labor with his energy restored. The physical mini- 
mum in other words must be relative to the industry 
in which the laborer is engaged and be sufficient to 
maintain the existing standard of efficiency. But a 
physical minimum, interpreted in this way, is far too 
variable to afford a foundation for a law of wages ; 
and it was natural, especially in view of the promi- 
nence of Malthus's doctrine, that the minimum 



Principle of Population in Wages TJieory. 1 7 



should be interpreted physiologically rather than 
industrially. A physiological minimum does, and 
an industrial minimum does not, provide that ele- 
ment of certainty and stability which is necessary in 
the determinant of wages. 

Ricardo's logical mind discerned that it was im- 
possible to base a scientific law of wages upon a 
varying foundation. There must be some power 
behind the law to determine wages in accordance 
with it. Without this power, the law can have but 
little scientific importance. The power which brings 
the law into operation Ricardo and his contempo- 
raries and successors found in the principle of popu- 
lation. Mr. Conner is somewhat indignant that 
Ricardo should habitually be misrepresented as 
putting forward a fixed and invariable standard ; 
and passages might be quoted, such as Chapter V., 
p. 74, of the Principles (Conner's edition), in which 
Ricardo somewhat despondingly remarks that the 
natural price of labor is " not absolutely fixed and 
constant." But Ricardo was too logical, and also 
too much under the domination of the Malthusian 
idea, to lay much stress on the exceptions he allows. 
It was necessary for scientific exactness that the 
standard should be fixed, and the principle of popu- 
lation at once suggested itself as the power which 
made the law operative. The pressure of popula- 
tion against the limits of subsistence is due to the 
strongest force in human nature, and, although 
Malthus, in the later editions, ceases to be a Malthu- 
sian, the popular impression of his doctrine remained 



The Bargain Theory of Wages. 



firm that no institution or custom was strong enough 
to stand long as a bulwark opposed to the principle 
of population. The dread of over-population (which, 
in the strictest Malthusian sense, however, is an im- 
possibility) made every economist tremble for the 
safety of any institution which did so oppose itself. 
Consequently, to Ricardo and his successors, the 
possibility of any standard of comfort higher than 
the physiological minimum was only theoretical. 
Yet, as the industrial conditions became more 
favorable to labor, wealth increasing faster than 
population, economists came to have that better 
understanding of the doctrine of population to 
which Malthus himself had come, and the idea of a 
standard of comfort, a conception more closely in 
accordance with the facts, replaced the physiological 
minimum as the determinant of wages. Unfortu- 
nately, the farther we depart from the physiological 
minimum and the more elastic the standard is al- 
lowed to become, the less satisfactory does the 
standard of subsistence become as the basis of a 
scientific theory. Ricardo had, on the whole, an 
invariable standard, because wages cannot fall below 
a physiological minimum and remain below if in- 
dustry is to continue. The elastic standard of 
comfort cannot be used with the same effect, unless 
we can demonstrate that the standard of comfort is 
so supported by custom and so entrenched behind 
all the moral abhorrence which men can muster 
against a lower order of living, that it is practically 
impossible to force men to accept any other. 



Industry Subject to Fluctuations. 19 



The fact that on less than represents a standard 
of comfort a man may, for a time, support life, is the 
source of danger. If industry were always pro- 
gressive, or even permanently in a stationary state, 
a standard of comfort might possess stability ; but 
modern industry is subject to periodical fluctua- 
tions; and, during depressions, large numbers, and 
a comparatively large proportion of the working 
classes, are out of employment and may therefore 
be faced with the alternative of starvation or the 
acceptance of a wage lower than will permit the 
maintenance of the standard of comfort. Is not 
the life more than meat, and the body than raiment ? 
they may urge, unanswerably, to their protesting 
habits and prejudices. It is hard to understand how 
any prejudice in favor of a particular manner of 
living can withstand such an appeal, and, under 
modern industrial conditions, such an appeal has 
often to be made. It is waste of words to speak of 
a stable standard of comfort when ten per cent., and 
more, of the working classes may be out of work; 
and yet, without stability, the existence of a standard 
of comfort has little bearing on the problem of 
the determination of wages. It is to a conscious- 
ness of the tendency of irregularity of employ- 
ment to lower the standard of living that the 
modern demand for fixing the living wage is due. 
The standard of a living wage is not fixed far in 
advance of what the members of the working classes 
can conceive. It is, on the contrary, determined as 
the ordinary standard of comfort at which, in pros- 



20 The Bargain Theory of Wages. - 



parous times, the working classes live. It has been 
objected, and objected rightly, that to establish such 
a standard wage must have the effect of reducing 
employment and throwing the less efficient out of 
work ; but it is answered that, for the best interests 
of the working classes as a whole, total lack of em- 
ployment for some is better than irregularity of em- 
ployment and wage for all. While all are subject 
to the irregularity due to the fluctuations in trade, 
the class standard can neither be high nor stable. 
The object of a policy of a living wage is to avoid 
the degradation of the whole class by throwing the 
burden on the less fortunate individuals, justifying 
the policy in the old way that it is expedient that 
one man should die for the people and that the 
whole nation perish not. The same notion is behind 
the plans, such as Mr. Charles Booth's, for the organ- 
ization of dock labor. The rationale of these propo- 
sals is that the standard of the working classes is so 
far from being permanent enough to determine 
wages, that we must practically determine wages to 
prevent the standard from being set aside. Before 
the standard of comfort can act as the determinant of 
wages it must possess stability. Without stability, 
it is without the power to govern wages. Ricardo 
and the early economists were aware of the scientific 
necessity of having a fixed standard, and, for this 
reason, accepted the standard of a physiological 
minimum, arguing, in spite of their theoretical ad- 
missions, as if wages were down to the minimum. 
Below a physiological minimum wages cannot long 



Subsistence Theory and Industrial Conditions. 2 1 



remain, and this was their point of absolute cer- 
tainty. 

During the first half-century after the beginnings 
of the factory system the outstanding features of in- 
dustrial and social life were such as permitted the 
economist, with the assistance of his theoretical ex- 
ceptions, to hold unquestioned this doctrine of 
natural wages. In England, wages were very low, 
although they probably were not quite down to the 
physiological minimum. Any divergence between 
actual wages and the cost of subsistence in this narrow 
sense was obscured by the fact that wages and the 
price of grain generally fluctuated together. The 
doctrine received strong corroboration from the 
paradox of poor relief and the apparent impossibility 
of remedying the defects of the poor laws. Allow- 
ances were made by the parish to the poor, and the 
condition of the poor remained the same. The net 
result of the parish allowances was to assist the em- 
ployer by paying for him part of the wages which 
he would, under other conditions, have had to pay 
out of his own pocket. As the allowance from the 
parish increased, wages decreased ; and the problem 
baffled the best minds of the community till they 
were forced to abolish the old system of poor relief 
altogether. This paradoxical phenomenon could be 
best explained by the subsistence theory of wages, 
and it is hard to see what other explanation can be 
offered. In the unprotected condition of the work- 
ing classes in the early days of the factory system 
the subsistence theory of wages undoubtedly offers 



22 The Bargain Theory of Wages. 



a full explanation of the facts, and, wherever the 
same hopeless condition exists as existed in Eng- 
land at the beginning of this century, the subsistence 
theory will afford the best explanation of the deter- 
mination of wages. In such a case it will be found 
to be as true as it was then, that every charitable 
allowance made in aid of wages will serve to admit 
of lower wages being paid. There is so much glib 
talk of the progress of civilization, and of the progress 
of the working classes, that we are apt to forget that 
there is a large section in every community for 
whom there has been no amelioration. Socially and 
industrially the " white slave " victim of the sweater 
is in the same position as those workers who were in 
receipt of poor law relief at the beginning of the 
century. The poor relief system has been im- 
mensely improved, and it is no longer to the em- 
ployer of labor that the State grants aid from the 
rates; but the economic sense of the community has 
not yet been educated to see that a frequent effect 
of the half-crown dole to the poor struggling widow 
is to enable her to accept lower wages, and possibly 
to drive down the wages of others who receive no 
half-crowns. Against indiscriminate charity every 
one of us is prepared to take up his parable, but 
what of discriminating charity ? Discrimination is 
good, but if the light that is in us be darkness! 

In consequence of the rise of wages during the last 
half-century, the theory cannot now be maintained 
in its original somewhat naive form. The wages of 
the majority of the working classes are considerably 



Changed Lidustrial Conditions. 23 



above the physical minimum and, in consequence, 
much of the original argument and counter-argument 
has lost its force, although still often put forward. 
Naturally a good deal of evidence is of an ex post 
facto character. This evidence would be fully ad- 
missible, if care were first taken to show in virtue 
of what necessity the standard of comfort does de- 
termine wages; but this care has not always been 
taken. Wages are higher, therefore the standard 
must have been higher, is a type of the style of 
argument, and, in spite of Adam Smith's common- 
sense comment that "it is not because one mail 
keeps a coach while his neighbor walks a-foot that 
the one is rich and the other poor; but because the 
one is rich he keeps a coach, and because the other 
is poor he walks a-foot," * z. propter hoc is asserted 

* Wealth of Mations, p. 31. The objections to the doctrine 
were set forth by Adam Smith almost before the doctrine had been 
clearly formulated. The objections are raised to the early form of 
the theory and have not the same force against the standard of com- 
fort. The advocates no longer insist on the necessary correspondence 
between wages and prices, and with one exception Adam Smith's 
objections are variations of the contention that wages and prices vary 
independently of each otlier. The exception is that, in agriculture at 
least, summer wages are higher than winter wages, although the cost 
of living is less in summer than in winter. This objection cannot be 
met by admitting that wages do not respond to sudden changes in the 
cost of living, for the occasion, in this instance, is recurrent. If win- 
ter wages are lower than summer wages it is evident that the cost of 
living cannot be the sole determinant of wages. Winter wages are 
lower than summer wages in all trades that depend completely on the 
seasons, and may be lower in other trades on account of increased 
competition. Winter wages are generally lower in Canada than sum- 
mer wages, and the working day is not always shorter. The driver^ 



24 TJie Bargain Theory of Wages. 



while it is still doubtful whether even di post hoc is 
justified. 

There are many industrial facts which bear out 
the contention of the theory and make, at least, a 
prima facie case, on its behalf. We have, in the 
first place, the well-established fact that wages are 
highest where the cost of living is highest. City 
wages are generally higher than country wages, and 
although this may be in part due to the greater 
efficiency of town labor, the correspondence between 
the cost of living and wages is too extensive and 
too marked to be merely accidental ; and the corre- 
spondence appears not only when we compare town 
and country, but also when we compare different 

on the street railway in Quebec City are paid seven dollars in summer 
and five dollars a week in winter, and in spite of the shorter working 
day the manager admitted that the hands " earned their money harder 
in winter than in summer." The cost of living in Canada on account 
of the climate must be at least one third higher in winter than in 
summer. Canadian Labor Conmiission, Quebec Evidence, p. 820 ; 
see also New Brunswick Evidence, p. 479, where it is stated that 
one dollar a day is paid in winter and a dollar and a quarter in 
summer, 

" Q. Why are the wages lower in winter than they are in summer? 
A. Simply because we can get the men to work cheaper in the 
winter. 

" Q. Do they work the same amount of time ? A. Yes. 

" Q. Then the only reason is that the supply is greater than the 
demand ? A. Yes ; that is all. Men are glad to work for a dollar a 
day in winter, and prefer to work for us at that rate of wages than go 
to work in the woods." 

The Canadian winter recurs with a certain regularity, but wages 
have not been adjusted to meet the increased cost of living, although 
the more provident of the working classes endeavor to adjust their 
expenditure, 



Evidence in Support of Subsistence TJieory. 25 



sections of the country. Thus, in the United States, 
wages are higher in the towns than in the country, 
but they are also higher in the West than in the 
East. In the latter case, the higher cost of living 
seems to be related to the higher wages as cause to 
effect. The annual average earnings for the whole 
of the United States is $447.44, but the earnings in 
the Western States are far above the average, reach- 
ing in Wyoming $806, and in Colorado $685.* The 
following is a comparative statement of wages in 
town and country (165 towns of more than 20,000 
inhabitants) : 

MEN. WOMEN. CHH.DREN. 

Town average $567 $391 $159 

U.S. " 498 276 141 

Country " 401 239 120 

The figures in this table show also that, on the 
average, the wages of women are lower than the 
wages of men. The reasons why this is so have 
been abundantly discussed and a practical agreement 
has been reached, viz., that one cause why the wages 
of women are less is that they demand less, and that 
they demand less because they can live on less. It 
may be that the women of the upper classes insist 
on a higher standard of comfort than the men of 
that class do ; but the women who earn wages do 
not belong to the upper classes and for many reasons 

* Dr. Carroll Wright, from whose ludusirial Evolution of the 
United States, p. 199, these figures are taken, says that the figures 
for Wyoming and Colorado are drawn from too narrow a basis to be 
quite representative, 



26 The Bargain Theory of Wages. 



have fewer requirements than the men of their class. 
In the first place, they do not require so much food 
to nourish them ; and when wages are so low that 
the cost of the bare necessaries of food absorbs the 
larger part of the wages, women's wages may be at 
least one fourth lower than men's. The fact that 
they can live on less makes it possible for them to 
accept less and yet remain as efficient as they were, 
while male labor would be degraded. In the second 
place, a woman's standard includes more of those 
utilities which cannot be reduced to a money meas- 
ure. The wages of female skilled labor and female 
unskilled labor do not differ so much as the wages 
of male skilled and male unskilled labor — the reason 
being that the female skilled trades are considered 
more genteel and are, therefore, over-crowded. A 
girl employed, say as a bookbinder, will rather sub- 
mit to a reduction of wages than consent to mix with 
the lower social class of workers who are employed 
in making match boxes. Her social prejudices 
weaken the resistance she can offer to any attempt 
to reduce wages, and, consequently, we find that 
the wages of female workers never depart much from 
the average. The relatively high wages of the less 
skilled trades are due in part also to the higher real 
requirements of these workers. Women of the 
lower class who seek employment are, as a rule, en- 
tirely dependent on what they earn ; and they must 
therefore earn as much as will cover the cost of living. 
The wages of female workers in a more skilled trade 
are used, to considerable extent, simply for dress and 



Women s Wages. 2*/ 



pocket money — a part, sometimes the greater part, 
of their support being obtained gratuitously at home. 
Consequently, their standard of living has not sufifi- 
cient stability to enable it to resist attempts to lower 
wages. In the third place, a woman's standard of 
subsistence is frequently only a personal standard. 
It is individual rather than social because she has 
only herself to support out of her wages. A man's 
standard of subsistence includes the support of his 
dependents. There are, it is true, a large number 
of women, widows with families of young children, 
and others who have to do more than merely support 
themselves; but these form only a minority of the 
working women while the men who have dependents 
are in the majority. Men are thus bound to offer 
effective resistance to any attempt to lower wages. 
Family affection is a strong force safeguarding the 
standard, and where it is operative helps to maintain 
wa^es at a higher level. It has the greatest effect in 
maintaining the standard when the family is almost 
entirely dependent on the wages of the breadwinner. 
Where part of the responsibility is removed from 
his shoulders, because the dependent members of 
the family contribute something to the family purse, 
his power of maintaining a high wage is proportion- 
ately less. The higher wages are not so much re- 
quired and, consequently, are less likely to be 
obtained, because less from the breadwinner v/ill 
serve to maintain the family standard of comfort. 
It is curious how closely family earnings approxi- 
mate to an average. It is possibly becoming less 



The Bargain Theory of Wages. 



true that the family is the wage-earning unit ; but 
where the head of the house is not the sole wage- 
earner, his wages are proportionately less. The 
annual earnings of the factory hands are lower than 
the annual earnings of the worker in the building 
trades which demand an approximately equivalent 
efficiency; and the explanation is, that of the de- 
pendents of the former, 1,25 per family are con- 
tributing to the family funds, while .25 only of the 
dependents of the latter are engaged in gainful occu- 
pations. The wife and some of the children of the 
factory hand accompany him to the factory, the 
wife of the carpenter or the bricklayer remains at 
home and the children continue at a school until 
they are older.* 

These facts are capable of receiving a two-fold 
interpretation. The man who follows alternative 
trades may earn as little at the two as he could by 
efficient practice of either one; but the reason^ie 
offers for his conduct is that it is the only way to 
make a living; and the man who sends his wife to 
the mill, and takes his children away from school at 
an early age, will generally justify his action on the 
ground that this is the only way in which he can 
make both ends meet. That there is a causal effect 
between the standard of life which a man keeps be- 
fore him and the wages paid to him is a fact beyond 
dispute ; but which is the cause and which the effect 
is, by no means, always clear. The one standard 
probably acts and reacts on the other. And the 

* See Gunton's Wealth and Progress, p. 171. 



Practical Motive of Modern Subsistence Theories. 29 



determination of the direction of the causal relation 
has not been rendered easier by the change which 
happier industrial conditions have brought in the 
theory. The operation of the new poor law destroyed 
the old economic paradox; and the growth of 
wealth and the rise of wages made it impossible to 
assert the subsistence theory in its early pessimistic 
form. The theoretical exceptions, which Ricardo 
had admitted, were brought out from the back- 
ground and made much of. The expansion of 
English enterprise and industry made English econ- 
omists aware of the varying conditions of labor in 
different countries and the wider experience seemed 
to suggest that the higher the standard of living the 
higher the wages. The centre of interest in eco- 
nomic questions was gradually changing from wealth 
to welfare, and the growth of democracy brought 
into prominence the practical problem of the best 
method of raising wages. The welfare of the greater 
part of the nation depended on the amount of the 
necessaries, comforts, and luxuries of life they could 
command with their wages, and the practical prob- 
lem of raising wages was of more interest than 
the scientific problem of the law of wages. The 
first conclusion to which a comparison of interna- 
tional standards of life and comfort and international 
wages led, was, that since the higher the standard 
the higher the wages, the best method of raising 
wages was first to raise the standard. The standard 
of living or subsistence which, under Ricardo's as- 
sumption that wages must fall, had provided the 



30 



TJu- Bargain Theory of Wages. 



socialists with tlunr most powoiful criticisms of ex- 
isting;- institutio!\s. becomes ii\ the hands of the 
most hopeful of modei'ii labor ad\-ocates a lever for 
raisiui;' \\ai;es. If \vai;'es depend on the height of 
the standard, the practical conclusion is to et\dea\or 
to create new wants .vm\ new aspirations, in the con- 
tulent hope that, when these are felt and adopted, 
wages will rise in propo\tion. The working;' classes 
thus seeni to ha\ e their future in their own hands. 
It is no loni;er an iron law under which tluw li\'e. 
but a law which their own \'oices ha\'e [Moclaimed. 
their ow n wishes can amet\d. This is the ke\--note 
of the polic\' of the ethico-socialist reformers of the 
daw who declare, if we rna\- take Mr. Keir llardie 
as their s[v,>kesman : ■* Wa^^es are ileternuued b\- th.e 
standaril of li\in_L;'. If \-ou impro\-e the condition of 
the n\en \-ou make a hii;her wai;e necessary," 

The theory has. therefore, become more i;rateful 
to our n\odern senthiients. but. uufortunatelw at the 
same tin\e, in the [irocess of transforniation. has lost 
i\lmost entireU- what of scientific wdue it had. The 
truth of the theor\'. in its eari\- form, depended on 
the fact that there was a limit below which wages 
could not fall and industry continue. I li^^her than 
this limit they mi^ht be temporaril\- : lower it was 
impossible for thent to be. Kicardo was not in- 
clined to \.\\ <wc<> o\\ the causes which raised 
niarket w.u^es abo\-e natural wat:'es. aw^X never 
dreanu of an application of the theory to pro\e that 
market waives also were directl)' deternunedi by 
variations in the standard. This is reall\- what the 



TJtc Wtakncss of tJu- Modern Form. 3 1 



nuHlcin ai.l\ocatcs attempt to show roo-ardiiig 
I^Ricaalo's) market wag'cs. They still maintahi that 
the staiularcl of life detennines the tniiunuun below 
which wa«^es cannot fall, hut the)- reject altOL;ether 
the assumption that wages tend to fall, huleed, 
they seem to make the contrary assum[ition that 
wages have freedom to move only in one direction — 
upwards; and that each step of progress is irreversi- 
ble. When, by raising the standard of life, a new 
mininunn has been created, it is asserted that this 
new minimum has all the determining power on 
wages which the original physiological or industrial 
minimum could have. The raising of the standard 
of living is a practical method of raising wages only 
if the new mininium thus created has all the perma- 
nence and stability of the old. The new minimum is 
not bascil oi\ any physical necessity, or. as )-et, oi\ any 
industrial necessity; but it must become at once so 
firmh" entrenched behind the customs and habits of 
mei\ thvit it can otfer a \ery serious resistance to any 
attempt to reduce wages below the amount which 
would permit life according to the new standard. 
The new minimum must at once attach to itself all 
the determining power of the old ; but it can do so 
only by creating habits and dispositions as strong 
and tenacious as the habits aiul tlispositions which 
have been outgrown. The creation of now wants 
and aspirations, so strong that they have all the 
force of entrenched habits, although there is as yet 
no means of satisfying these wants and aspirations, 
is not to be accomplished in a week or a )-ear. We 



32 The Bargain Theory of Wages. 



may, of course, fix wages, as Mr. Keir Hardie de- 
sires, by legislation, at the living wage of three 
pounds per week, and trust that the increased op- 
portunities which the higher wages afford will enable 
the wage-earners to form a new habit of life in which 
new and higher wants and aspirations have a proper 
place ; but that is legislation, not wages theory. On 
the contrary, it is an explicit contradiction of the 
subsistence theory, which requires that higher wages 
shall follow, and be caused by, the higher standard 
of living. With the advisability of such legislation 
we are not concerned, except in so far as the pro- 
posal illustrates the difficulties into which the more 
hopeful form of the subsistence theory leads us. 
We have to reconcile a doctrine which professes to 
show a method of raising wages with a theory which 
declares that there is a minimum below which wages 
cannot fall. 

It is obvious that the reconciliation cannot be 
affected by supposing the universal and immediate 
adoption by the whole of the working classes of the 
proposed additions to the standard of living. Such 
a supposition would be contradicted both by history 
and by moral theory. Wholesale conversions do 
not usually involve any serious change of heart. 
The masses are never elevated at once, but by the old 
and famihar way of making giants and leaving it to 
them to elevate the mass. New wants and aspira- 
tions will at first be felt by but a few — too few to 
bring any serious influence to bear on the labor 
market. Consequently, if the creation of new wants 



Mr. Glint on s Version. 33 



and aspirations is to be a practical method for rais- 
ing wages, it must be supposed to effect the purpose 
in some indirect way: for directly and obviously the 
effect of new wants must at first be infinitesimal. 

Mr. Gunton has endeavored to restore the subsis- 
tence theory to the rank of a scientific explanation 
of wages. It was rapidly becoming a mere pious 
opinion and it was necessary to restore the necessity 
and determining power which the theory had in its 
earliest stages, in some way consistent with the prac- 
tical aim which had come to be associated with the 
theory. The evidence which can be given in favor 
of the theory is not conclusive till it has been 
demonstrated that the standard of life can determine 
wages: until this has been shown, the concomitant 
variation of wages and standards does not yield the 
desired conclusion. Mr. Gunton faces his difficulty 
boldly and declares that " the chief determining in- 
fluence in the general rate of wages in any country, 
class, or industry is the standard of living of the 
most expensive families furnishing a necessary part 
of the supply of labor in that country, class, or in- 
dustry ": or, as he says, more briefly, later on the 
same page, " the minimum amount upon which the 
most expensive laborers will consent to live deter- 
mines the general rate of wages in that class."* 
We may translate this into a newer terminology, 
and say that the wages of labor are determined by 
the marginal supply price of labor. Mr. Gunton, 
however, seems to have been misled by analogy. 

* Gunton's Wealth and Progress, p. 89. 



34 The Bargain Theory of Wages. 



The marginal supply price of any commodity is the 
price at which the most expensive portion of the 
commodity can be sold. Mr. Gunton, applying this 
conception to labor, claims that the marginal laborer 
is the laborer with the highest standard of living. 
He may be so, but not necessarily. The marginal 
laborer is the laborer who is on the margin of not 
being employed ; and whether he shall be employed 
or not depends on whether his employer thinks it 
worth while, considering the price of the commodi- 
ties which he will be engaged in producing, to em- 
ploy him. It is not a matter of indifference to an 
employer which laborer is the marginal laborer. In 
slack times, it is the inefficient workman who is the 
first to be dismissed and the efficient workman who 
is surest of his place. This is because the employer 
has formed his own personal estimate of what the 
man is worth — an estimate which is not final and 
may be modified by the attitude which the laborer 
chooses to take. An efficient workman who has 
rendered himself obnoxious by agitation and com- 
plaints has, from the employer's point of view, so 
much the less efficiency. In the main, however, it 
is an estimate of efficiency that determines who is 
the marginal laborer. As a general rule, the lower a 
man's standard of living the less his efficiency, and 
the higher his standard the better is he at his work. 
The laborer with a high standard of living is thus 
not the marginal laborer whose earnings determine 
the general rate of wages. The real marginal laborer 
is he who " adds to the total produce a net value 



The Marginal Laborer. 35 



just equal to his own wages," * and is thus, under 
the actual conditions of industry, the least efficient 
workman employed. Accordingly because the least 
efficient workman is also, generally, the workman 
with the lowest standard of living, if the standard 
of living of the most expensive laborer is to be 
taken as the determinant of wages, the standard 
must be that of the least efficient, not of the most 
efficient. Mr. Gunton adduces in support of his 
contention the fact the native workman in Amer- 
ica, who has the higher American standard of 
living, can barely do as much as make both ends 
meet ; while the immigrants, with a lower standard, 
can, on the same wages, save money and accumu- 
late property. " What the most expensive por- 
tion of a given class must receive the balance 
may and will receive, "f In this way the law is 
given determining power and to the great body of 
labor becomes beneficent. All those whose standard 
falls short of the highest can, according to their 
ideas, live on their wages in comparative affluence, 
while only a select few feel the pinch of circum- 
stances. " There is nothing," he continues,:}: " in 
the nature of this law to prevent the rate of wages 
from rising to five thousand dollars as well as to five 
hundred dollars a year." And the fact that there 
is nothing in the law to prevent or to show that 
such a rise under any known conditions is impos- 
sible, shows the law to be comparatively meaning- 

* Marshall, Principles of Economics, p. 567. 

f Gunton's Wealth and Pi-ogress p. 89. \ Ibid,, p. 90, 



36 The Bargain Theory of Wages, 



less. The total national dividend out of which the 
expenses not of the working classes only, but of the 
whole of society must be met is not sufificient, 
divided share and share alike, to give such an aver- 
age wage. No doubt from an increased product, 
and out of a larger national dividend, a larger abso- 
lute, if not also a larger relative share, may go to 
labor; and a higher standard of living among the 
working classes will no doubt result in an increase 
of efficiency and indirectly, through consumption, 
make it possible to pay high wages ; but the increase 
arising in this way will not be very great. The in- 
crease of the product of industry which has taken 
place within the last forty years has been due, per- 
haps, more to the increased use of capital in manu- 
facturing than to an increase in the efficiency of 
labor; and there is no reason whatever for sup- 
posing that there will be in the future a greater pro- 
portional increase of efficiency than there has been 
in the past. At any rate a rise of the average wage 
to five thousand dollars a year can be rendered pos- 
sible only by an enormous increase of efficiency: 
directly, the standard of living alone, however 
powerful as a determinant of wages, is quite in- 
capable of raising average wages to even the fifth of 
that sum. The optimism of this practical form of 
the theory is so extreme that it, in effect, denies 
that there is any labor question at all. The prob- 
lems of distribution arise only because the national 
dividend is limited in amount. Mr. Gunton not 
only ignores the existence of other claimants for a 



TJie Demand for Labor. 37 



share of the dividend, but assumes that the dividend 
itself is large enough to make it possible for the 
working classes to raise their demands indefinitely 
and have them met. It is true that if the efficiency 
of industry is increased by a rise in the standard of 
living a larger average wage may be paid ; but, in 
thus arguing, we have abandoned the original theory 
of wages and adopted in its place a modified form 
of the later theory which makes the productivity of 
labor the measure of wages. 

A more serious defect in Mr. Gunton's theory is 
that, in order to obtain that permanence in the 
standard to make it the final determinant of wages, 
he entirely ignores the demand for labor. He 
writes as if he had adopted without qualification 
the trade-union and working-class fallacy of the 
Lump of Work, which is, that there is a certain 
amount of work to be done which will be done no 
matter what the cost. Demand, as Mill pointed 
out, though he forgot his own distinction when he 
wrote on Avages, is always relation to price; and if 
labor has a supply price it has also a demand price. 
The existence of a demand price must very seriously 
affect the ability of the working classes to determine 
wages according to their wishes. If the demand 
were fixed and invariable, the permanence of the 
standard of life could be assumed and the higher 
standard would, as Mr. Gunton claims, determine 
the wages for all. In an open market all labor of 
the same degree of efficiency will be paid at the one 
rate. If the demand is sufficient, and will remain 



$8 The Bargain Theory of Wages. 



under all conditions sufficient to carry off the sup- 
ply, the rate of wages will be determined by the 
supply price of the most expensive portion. But 
what happens if the demand is not fixed and, under 
given conditions, is not sufficient to carry off all the 
supply ? The first effect is a trial of strength be- 
tween the standard and the tendency of wages to 
fall. The laborers with the highest standard, ac- 
cording to Mr. Gunton, being the marginal laborers, 
will be the first to go. If they are willing to accept 
a lower wage which, ex hypothesi, is too low to cover 
their expenses, they have the same chance of em- 
ployment as the others. If they obstinately hold 
by their standard they may find themselves out of 
work; and, though it is labor that is bought and 
sold, the laborer must live by the price of labor. 
There is a great strength in the position of any bar- 
gainer who stands out for a price; and, other things 
being equal, he is likely to obtain the price he de- 
sires. But in the case of labor other things are 
not equal; and the only force on whose operation 
the laborer can depend to make good his demand is 
the difficulty the buyer of labor has in finding a sub- 
stitute which will serve his purpose equally well. 
No man can claim to be indispensable, and the in- 
convenience there is in finding a substitute for an 
unwilling workman is never very great. The mar- 
ginal laborer must, therefore, when the demand for 
labor falls off, either lower his demands or be con- 
tent to stand aside ; for, by Mr. Gunton's hypothesis, 
the marginal laborers are few in number, and noth- 



The Necessities of the Laborer. 39 



ing has been said about efficiency. If the standard 
for which a struggle is being made has been adopted 
by thousands, and if each laborer of the thousands 
is resolutely steadfast in demanding a wage which 
will enable him to live up to the standard, a proposal 
to reduce wages may be successfully resisted, be- 
cause the trouble and inconvenience of finding sub- 
stitutes for so many is very great. This is probably 
one reason why it has been possible to maintain the 
American standard of living in spite of the compe- 
tition of low-class immigrant labor.* 

The solution of the difficulty, however, is not far 
to seek. The marginal laborer is not necessarily 
the laborer with the highest standard of living. 
Experience, on the contrary, shows that the mar- 
ginal laborer is almost invariably the laborer with a 
low standard. The employer takes into account 
when he buys labor the efficiency of what he buys ; 
and thus there is a demand price as well as a sup- 
ply price. The standard of living is therefore not 
the sole determinant of wages. In the absence 
of a fixed demand for labor, the standard of the 
laborer is not stable and permanent enough to make 
it impossible for wages to fall below what will admit 
of this standard. The force on which the laborer 
must rely to obtain what he demands is not the 
strength of his desires, his wants, or his habits, but 
the inevitable inconvenience to the employer in re- 
placing him. If the standard has been widely 
adopted, and is strenuously maintained, the incon- 
*See the chapter on the Migration of Labor, 



40 The Bargain Theory of Wages. 



venience may be so great as to counterbalance the 
possible gain to the employer from a deduction of 
wages. The standard of living is thus not a mini- 
mum below which wages cannot in any event fall, 
but a conception which each laborer has formed of 
his own merits or of what his labor is worth and by 
which he is prepared to stand. If need be he will 
accept less, as a merchant may sell his goods for less 
than cost to avoid a greater loss; but the laborer 
will be as anxious as the merchant to avoid this con- 
tingency. He can accept less temporarily, because 
he can support physical life on less; but the more 
firmly he is attached to his standard the greater the 
resistance he will oppose to any attempt to force 
wages below it. He is not invariably successful in 
his opposition, as the strike returns show. He is 
apparently, however, almost as often successful as 
unsuccessful. The peculiar position of the laborer 
probably renders it more difficult for him than for 
other vendors to enforce his estimate of what he 
sells. In many cases the seller of a commodity may 
withdraw part of the supply, as the Dutch planters 
destroyed the spices; but the laborer has not the 
same freedom. It is generally asserted that every 
laborer must work and must work immediately; and 
that consequently he is dependent for enforcing 
his estimate of what he sells on the effect which 
the prospect of inconvenience has on the mind of 
his employer. How far the assertion is correct we 
shall inquire in next chapter; for this is one of the 
cardinal propositions of the Wages-Fund Theory. 



CHAPTER II. 



THE WAGES-FUND THEORY. 



IT is hardly possible to draw a rigid line of distinc- 
tion between the Subsistence Theory and the 
Wages-Fund Theory; for the two theories are not 
mutually exclusive, and indeed, sometimes, are held 
by the same writer. The distinction is to a large ex- 
tent a matter of the relative emphasis laid by the par- 
ticular writer on the separate terms of Ricardo's con- 
trast between market and natural wages. Natural 
wages, he had described as being such as would 
maintain the race of laborers, and such as would be 
paid in a stationary society. Market wages, on the 
other hand, may, in an improving society, for an in- 
definite period, be constantly above the natural rate; 
and society during the first half of this century was 
distinctly improving.* Ricardo had developed,' with 
proper emphasis and with the proper theoretical ex- 
ceptions, the theory of wages which explained the 
industrial situation down to his own period ; and it 

* The improvement was not continuous, nor was it so marked in 
some departments as in others, but, nevertheless, the characteristic of 
the half-century was progress. 

41 



42 The Bargain Theory of Wages. 



was to be expected that when industrial conditions 
changed for the better the theory of wages would 
also become less pessimistic. After the close of the 
war period it was seen that wealth was increasing 
faster than population; and Ricardo's theoretical 
case was consequently everywhere actually realized. 
Market wages, therefore, rather than natural wages 
was the subject of discussion and investigation, and 
the theory of wages which was gradually formulated 
by economists between Ricardo and J. S. Mill was 
explicitly a theory of market wages. The doctrine 
of natural wages was not rejected. It still formed a 
gloomy background. Natural wages were the mini- 
mum to which the incontinence of the working 
classes might reduce wages ; but it was not consid- 
ered necessary to discuss the minimum in the course 
of the treatment of market wages, any more than a 
publicist would consider it necessary to interpolate 
a reference to physical force in a treatise on repre- 
sentative government. An exaggerated Malthusian- 
ism made it possible to maintain the older theory 
while discussing the new. 

It might, in a sense, have been possible even 
without the assistance of the Malthusian doctrine to 
maintain both theories ; for each attacks a different 
part of the Wages Question. Wages may be con- 
sidered from two points of view — as the share of the 
product or income of society which is ultimately 
allotted to labor, or as the amount of the commodi- 
ties ready for consumption which the individual 
laborer is able to obtain. The problems of wages, and 



General Wages and Wages per Head. 43 



wages per head, are quite distinct. The first involves 
a discussion of general wages which may result in a 
discussion of average wages, and the second a discus- 
sion and description of the causes why A's wages are 
such and such, and more or less than B's. The 
Wages-Fund Theory discusses the problem of gen- 
eral wages fully, but adds little or nothing to the 
discussion of particular wages. It is a theory re- 
garding the source, ultimate or derivative, from 
which wages are paid, rather than a theory explain- 
ing the actual differences of wages received. The 
Wages-Fund Theorists do incidentally, and some- 
times in lengthy chapters, discuss the causes of the 
difference of wages; but the treatment they give to 
the problem is avowedly supplementary. The sub- 
sistence theory, on the other hand, is, in the main, 
a theory of particular wages. While the minimum 
was interpreted strictly as a physical minimum, the 
early theory may be regarded as dealing both with 
particular and with general wages. The same cause 
which determined general wages also determined 
— accidents and theoretical exceptions apart — the 
wages which each man received. With every change 
in the direction of the recognition of the stand- 
ard of life as elastic, the subsistence theory became 
more and more a theory of particular wages; and 
the general problem was neglected. The problem 
of the determination of the particular wages is un- 
doubtedly the more interesting of the two, but it 
is barren of scientific results. The causes of the 
differences of wages are so various that an investiga- 



44 l^h^ Bargain Theory of Wages. 



tion of them will not readily yield any law of more 
than temporary and local significance. The diver- 
sion of the attention of economists from particular 
to general wages, though it made political economy 
abstract and " dismal," was a real gain to economic 
theory. When the growing prosperity of the nation 
caused the abandonment of the notion that the 
standard of life was fixed and permanent, the scien- 
tific value of the early theory went out of it ; and it 
became, as was said above, merely a theory of par- 
ticular wages. The Wages-Fund Theory took up 
the' scientific problem and devoted itself mainly to 
a discussion of the source from which wages are 
paid and of the laws which govern the amount of 
the wages fund. It makes no contribution which 
is worth serious consideration to the discussion of 
particular wages. It gives us merely an arithmetical 
average which has no practical bearing, and a general 
enunciation that particular wages can only rise or fall 
at the expense of other wages. Mill, indeed, does 
give a supplementary chapter (in which he follows 
Adam Smith very closely) to a discussion of the 
causes of differences in wages, but the causes he finds 
at work do not find their ultimate explanation in the 
Wages-Fund Theory. The problem of general wages 
is the only one of scientific importance and it is highly 
desirable that the two problems should be kept 
distinct ; but it is not desirable that the solutions 
of the separate problems should have no connec- 
tion the one with the other. The particular causes 
of the differences in wages should be shown to 



Wages-Fiuid Theory and Particular Wages. 45 



be cases under the law of general wages and not 
treated as if they were independent laws of wages. 
The Wages-Fund Theory has no place for these 
particular laws ; and it treats them as if they 
were supplementary laws brought in to explain 
what the Wages-Fund Theory cannot be made to 
explain. The Wages-Fund Theory was undoubt- 
edly thought to explain particular wages. It was 
constantly, in its popular version (or perversion), 
used as an argument against trade-unions, for in- 
stance, and the possible influence of trade-unions on 
particular wages; and Mill himself, when he pro- 
poses to discuss facts in apparent contradiction with 
the theory, virtually makes the claim that the gen- 
eral law of wages does include and explain the par- 
ticular causes of the actual variations in wages. But 
his explanations are either unconvincing, if consistent 
with his general theory, or inconsistent with the 
theory if convincing. 

The Subsistence Theory and the Wages-Fund 
Theory are, however, as we saw, not mutually ex- 
clusive, and the latter theory was developed too 
closely under the influence of the Malthusian doc- 
trine ever to be placed in opposition to the earlier 
theory. Ricardo had defined capital as " that part 
of the wealth of a country which is employed in pro- 
duction, and consists of food, clothing, tools, raw 
material, machinery, etc., necessary to give effect to 
labor"*; and, since the most obvious way in 
which capital is " necessary to give effect to labor " 

* Ricardo, Principles, p. 72. 



4-6 TJie Bargain Theory of Wages. 



lies in supplying the laborer with the means of living 
during the extended process of production, Ricardo, 
to whose analytic mind the less essential was the 
practically non-existent, naturally came to resolve 
all capital into food. Thence it was but a step, 
and, under the influence of Malthus, an easy step, 
to the position that wages depended at any moment 
on the proportion of the amount of food or capital 
to the number of laborers in the community; and 
this is the essential doctrine of the Wages-Fund 
Theory. The progress of the working classes had 
taken away from the subsistence theory that ele- 
ment of necessity and permanence which it ap- 
peared to possess in the notion of a physical mini- 
mum; and Ricardo's definition and use of the term 
capital seemed to give back again the element of 
necessity which had been lost. The older form of 
the theory had relied on the absoluteness of the 
principle of population; but, with admission of a 
moral check, no permanent obstacle to an indefinite 
rise of wages seemed to remain. But, when Ricardo 
accepted unquestioned the assumption made by 
Adam Smith that wages were paid out of capital, 
and practically limited capital to the food necessary 
to give effect to labor, a new and inexorable limit 
and obstacle could be placed to the rise of wages. 
The intention of the capitalist, who had the right 
to do what he liked with his own, rather than the 
continence of the working classes, became the real 
determining force. Thus again the law of wages 
was made to depend on a force strong enough to 



The Wages-Fund Theory. 47 



bring it into o23cration as a determinant of wages; 
and the discarded physical minimum could be rele- 
gated to the background as a theoretical minimum. 
The intention of the capitalist laid down a practical 
and a necessary maximum beyond which wages 
could not rise. The Wages-Fund Theory which 
was thus established is the second scientific theory ; 
because it recognizes that a law of wages must be 
more than the pious opinion of an economist. 

The Wages- Fund Theory is a theory of supply 
and demand, and naturally discusses the supply of 
labor, and the demand for labor, and the force 
which brings about an equilibrium between, or equa- 
tion of supply and demand. The theory may be 
conveniently formulated in three propositions deal- 
ing with these three subjects. 

The first proposition dealing with the supply of 
labor may be thus stated : There is a determinate 
number of laborers, at any given time, who must 
work independently of the rate of wages, /. r. , 
whether the rate be high or low. Taken without 
the limitations generally stated by the Theorists, 
there is a very large measure of truth in this propo- 
sition. The compulsion of necessity drives men to 
labor. " Many workmen could not subsist a week, 
few could subsist a month, and scarce any a year, 
without employment*;" and the same necessity 
lies upon autonomous laborers as upon hired labor- 
ers, although the degree of compulsion to imme- 
diate work may not be so great. The Wages-Fund 

* Wealth of Nations, p. 28. 



4^ The Bargain Theory of Wages. 



Theory, however, quahfies the importance of this 
proposition by expressly excluding from considera- 
tion all but those who work for hire. The determi- 
nate number of those who must work includes those 
only who work for hire. Autonomous producers 
and those who render immediate services are not in- 
cluded in the number. Adam Smith had expressly 
excluded the latter class, and Ricardo followed his 
example, probably without reflecting on the extent 
of the class excluded. The Wages-Fund Theorists, 
in spite of their probably wider historical knowledge, 
followed Ricardo. The essence of the argument 
they based on this proposition is that, since the 
number of laborers obviously cannot be immediately 
increased, and, owing to the compulsion which lies 
on all laborers to work to live, is not subject to 
diminution, the supply of labor may, therefore, at 
any given time, be taken as fixed. But the boun- 
daries between those classes cannot be regarded as 
permanently fixed. Under normal conditions, when 
demand and supply are adjusted to each other in 
each of the three classes, there may be little irregu- 
lar transfer; but when industry fluctuates, the trans- 
fer from the one class to the other may be great. 
There is no inherent difficulty in the way of this 
transfer as there is in the case of the mobility of 
labor between trades. A man may still work at his 
trade whether he works at the bidding of another or 
on his own account. A shoemaker is still a shoe- 
maker whether he works in his own stall or in an 
employer's workshop. Peasant proprietors are not 



Is the Supply of Labor Determinate f 49 



the only autonomous producers. There are still 
large numbers of jobbing artisans, especially in the 
smaller towns; and many of these are found now 
working for themselves, and now at the bidding of 
another.* When wages are high they may enter 
the class of hired laborers; when wages are low, 
they may work for their own behoof; or, vice versa, 
according to the disposition and temperament of the 
individual. The class of laborers, moreover, who 
render immediate services, is not, in the present day, 
absolutely distinct from the class of hired laborers. 
In Adam Smith's day the feudal spirit was not quite 
extinct; and every nobleman had a large number of 
retainers to support his dignity. These retainers 
were, in every sense, unproductive, and could not 
on occasion seek employment as hired laborers. 
Servants, however, in the present day are generally 
engaged for economic purposes; and many of them 
are quite capable of finding employment as hired la- 
borers. Instead of employing a gardener or a coach- 
man by the year, one may hire him by the day or 
the week ; and the gardener may employ the rest of 
his time working for hire in a nursery, or market 
garden, or on his own behoof; and the gardener is 
the type of a comparatively large class. The wages 
of domestic servants have risen, in consequence of 
the attraction of female labor to the factories ; while 

* The development of industry on a large scale has been accom- 
panied by an increasing transfer of laborers from the autonomous to 
the hired class : but this movement has been so regular and so long 
continued that it may be considered normal. 
4 



5o The Bargaiti Theory of Wages. 



depression of trade drives many from the industrial 
to the service class at least for the time being. The 
prolonged business depression in the United States 
following the panic of 1893 has diverted a large por- 
tion of the new supplies of labor from business to 
the professions ; and in one profession at least — uni- 
versity teachers — salaries are falling in consequence. 
The prospect of certainty has, for the time being, 
more than offset the attractions of the chances of 
success. 

Thus, though it were true that the number of 
those who must work is determinate, it does not 
follow that the number of those who must work for 
hire is determinate. But the number of those who 
seem committed to labor is not altogether determi- 
nate. There seems to be a margin of labor (not 
necessarily a large margin) which works or not ac- 
cording to the inducement. We do not refer to 
the out-of-work members of a trade-union, for the 
Theorist will rightly point out that the number of 
laborers is only nominally smaller, if those who work 
support those who do not work. But if, and in so 
far as, those who are out of work are supported, not 
by the trade-union funds but by public or private 
charity, the burden of their support is borne by the 
community at large, and probably mainly by those 
members of the community who are not included 
within the class of hired laborers. The numbers of 
men in receipt of poor relief vary considerably ; and 
these fluctuations show that the first proposition of 
the Wages-Fund Theory requires some qualification. 



The Supply of Labor. 5 1 



The Theory, however, claims to be primarily a 
theory of the demand for labor. " The causes gov- 
erning the supply of labor may be taken as suffi- 
ciently elucidated. Our business is with the causes 
governing demand — governing the amount of wealth 
applied to the direct purchase of labor, or, as we 
may equally well express it, governing the Wages- 
Fund." * The causes governing the supply of labor 
are set forth in the doctrine of population and, on 
the whole, we are asked to consider the supply of 
labor which must work as given independently of 
the demand. 

The supply of labor is regarded as determinate, 
because laborers must work and cannot stand out for 
their price; but it does not necessarily follow that, 
because all laborers must work to live, their objec- 
tion to work for lower wages than they have been 
accustomed to, can have no effect on the price of 
labor. This inference, however, is drawn by all the 
exponents of the theory. Mill, indeed, does recog- 
nize briefly, in passing, in his chapter on profits, that 
the advance of wages is regulated by the productive 
power of labor. The motive which the capitalist 
has in advancing wages is not philanthropic but 
economic; and his advances are governed by the 
anticipated surplus of the product over the advances 
he must make to labor. Profit, therefore, depends 
on the productiveness of labor; and the laborer is 
therefore not a merely passive factor in the wages- 
bargain. The laborer must work, but it is the em- 
* Cairnes, Leading Principles^ p. 161. 



52 The Bargain Theory of Wages. 



ployer's interest that he should work. Therefore 
the objection to a large number of laborers to sub- 
mit to a reduction of wages has an undoubted in- 
fluence on the employer's intentions. To reduce 
wages in spite of the objections of the laborers is 
indeed always possible ; but it is not always profit- 
able; and an employer may, owing to these objec- 
tions, continue to pay higher wages than he might 
otherwise succeed in forcing his employees to accept. 
The reason is that, as Mill himself has pointed out, 
the mental and moral qualities of the laborer affect 
the productiveness of his labor; and hope and con- 
tentment are two of the most important of these 
qualities. " The wages of labor are the encourage- 
ment of industry, which like every other human 
quality improves in proportion to the encourage- 
ment it receives. . . . When wages are high, 
accordingly, we shall always find the workmen more 
active, diligent, and expeditious than when they are 
low. ' ' * To ignore his objections may make a work- 
man discontented, and a discontented workman is 
seldom as efficient as he might be. But the fact of 
the ultimate regulation of wages by the surplus 
which the employer hopes to realize was not con- 
sistently recognized either by Mill or by any other 
Theorist. The Wages-Fund Theory is, therefore, 
entirely a theory of the demand for labor — the sup- 
ply being regarded as fixed and the laborer merely 
as the recipient of wages. 

* Wealth of Nations, p. 34. For a further discussion of this 
question see the chapter on Trade-Unionisin. 



Capital and Wages. 53 



The first proposition has not been seriously, or 
intelligently, called in question, but the second has 
provoked endless discussion and criticism. It em- 
bodies the central doctrine of the Theory, and may 
be stated thus: In any country, at any given time, 
there is a determinate amount of capital uncon- 
ditionally destined to the payment of labor; and 
this is called, for shortness, the Wages Fund. 

The basis of this proposition is the assumption 
made by Adam Smith, and adopted, unquestioned, 
from him by all economists for a hundred years, that 
wages are paid out of capital. This is, perhaps, not 
the best way of expressing the important phenome- 
non to which attention is called, that the hired 
laborer receives not an immediate but a derivative 
share of the product of industry. Adam Smith 
evidently did not think that the assumption required 
either explanation or justification ; and, although 
both he and the chief of his successors pointed out 
the reason, in the organization of industry, why this 
should be so, they did not develop the reason so far 
as to show conclusively the necessity of the assump- 
tion. The process of production is spread over a 
long period of time and the main function of capital 
is to permit this extended process. We need not 
attempt to determine whether or not it is a law, or 
merely an observed fact of modern industry, that 
the progress of industry should mean the expansion 
of the period between the time when the first steps 
of production are taken and the time when the com- 
modity is finally in the hands of the consumer. 



54 The Bargain Theory of Wages. 



Ever since economists combined to reject the physio- 
cratic distinction between productive and unproduc- 
tive labor, more or less adequate recognition has 
been given, in theory, to the fact of long-period 
production. It does not require now even an effort 
of the economic imagination to realize how little 
of the labor of to-day has been engaged in produc- 
ing what will be ready for use to-morrow. A com- 
modity is not finally completed until the retailer 
has put into it the utility of being where it is 
wanted, and it is in the hands of the consumer. 
Only a comparatively small number of laborers are 
employed in giving the final touches to a com- 
modity, and usually the completed product of one 
industry is the raw material of another. Whether 
it takes one year or five years or ten years to bring 
a commodity from its earliest stages to the hands of 
the consumer is not a matter of much moment : the 
essential point is that, in every case, it does take a 
long time. The length of the period is, in part, 
concealed from us by the fact that under no circum- 
stances is a commodity brought thus far by one 
worker or group of workers alone. Each worker, 
or group of workers, disposes of the product to the 
workers of the next stage ; and so far as they are 
concerned, the process of production is complete. 
But the final product is the product of successive 
stages ; although, for the sake of brevity (ignoring the 
subsequent services of the transporter, the merchant, 
and the retailer), we generally speak of the last pro- 
ducer in the series as the maker of the commodities. 



Real Wages and the National Dividend. % 5 



The importance of this fact of the theory of wages 
is that, at any time, only a small proportion of the 
agents of industry can be engaged in turning out 
commodities which are immediately consumable. 
Since real wages consists of commodities ready for 
immediate consumption, wages must be paid out of 
the stock of consumable commodities and paid by 
those who own the stock. The great majority of 
wage-earners, then, cannot be paid out of the im- 
mediate product of their own labor because the goods 
they are engaged in advancing one stage towards 
completion are not in a condition to satisfy imme- 
diately any human want whatsoever. The real 
wages they receive must come out of the stock of 
completed commodities which has been called the 
national dividend. There is no other source from 
which wages can be paid. 

Whether wages are paid out of capital is the ques- 
tion whether goods ready for the consumer are or 
are not capital. Ricardo had defined capital in such 
a way as practically to limit it to the food necessary to 
give effect to labor; and, with or without a conscious 
ellipsis, his definition was adopted by most econo- 
mists. Food is the typical consumption commodity, 
and wages are therefore paid out of capital. The 
almost exclusive attention of economists down to 
the time of Mill to the problems of production had 
made it possible for them to regard wages simply 
as a means to further production. Mill did declare 
that all wealth is consumed ; but the emphasis he 
laid on this proposition did not enable him always 



56 TJie Bargain Theory of Wages. 



and consistently to recognize that consumption is 
an end in itself. Wages, i. e., real wages, are not 
paid for the purpose of enabling production to be 
carried on ; and the laborer never regards his wages 
in the light of an investment. Wages are an end ; 
and it is of no consequence immediately to the 
wage-earner that they are also a starting-point in a 
new economic cycle. It does not seem desirable, 
therefore, to include food and other consumable 
commodities within the content of the term capital. 
Capital is more appropriately confined to what Pro- 
fessor Taussig has called " inchoate " wealth or 
goods on the way towards completion for the satis- 
faction of human wants. Wages, and all the other 
distributed shares, are paid out of the income rather 
than out of the capital of the community ; although 
it is to be kept in mind that the income of the com- 
munity consists in that portion of the inchoate 
wealth which has just been advanced to the final 
stage. The wages of present labor will not, in gen- 
eral, be paid out of the product of present labor. 
The reward of labor is paid out of the product of 
past labor ; and the labor expended to-day may serve 
to remunerate labor a year or five years hence. The 
present reward of present labor consists of consump- 
tion goods which have been preparing for use during 
many years. 

The source of wages is the stock or the fund of 
such consumption goods; and those who are in 
possession of this stock are the real dispensers of 
wages. The laborer is certainly not the owner ; and 



The Ownership of tJie Wages Fund. 57 



his employer seldom is. The present necessities of 
the laborer compel him to exchange the value of 
his share in a certain amount of capital or inchoate 
wealth for commodities which will satisfy his imme- 
diate wants. If his necessities would allow him to 
wait until the wealth he has helped to create matures 
into, or is carried out into, commodities in a condi- 
tion to satisfy human wants, he might be able to 
exchange his share in the product for a larger 
amount of commodities that will satisfy his indi- 
vidual wants. But they will not allow him to wait. 
So he discounts the value of his present contribution 
to the income of five or ten years hence and receives 
in return actually consumable commodities which it 
may be five or ten years since he had helped to ad- 
vance one stage towards consumption. 

The employer, when he disposes of the output of 
his factory, is in practically the same position : he, 
too, discounts the value of his contribution to future 
income and he does so under the pressure of the 
same necessity of realizing now on what would ac- 
crue to him in the future. His necessity is not so 
immediate ; nor does he always feel compelled to 
make a bargain for the output with someone, before 
he begins to produce. The laborer not only sells 
his share of the ultimate product at one stage earlier 
than the employer sells his, but he is not in a posi- 
tion to take any risks. He cannot even wait, so 
great and so immediate are his necessities, until he 
has made his contribution before he disposes of its 
result. The employer, as a rule, can wait and the 



58 The Bargain Theory of Wages. 



buyer of the output of the employer's industry takes 
less risk and can afford to give better terms. The 
employer from this point of view is simply a middle- 
man or, if you like, a broker or private banker who 
discounts values which are too uncertain for the 
regular banker to touch. He takes the extra risk 
of the laborer's contribution not being what it is ex- 
pected to be, and consequently he must charge a 
proportionately higher rate of discount. Owing to 
the lengthened process of production the laborer in 
order to live is compelled to have recourse to his 
broker; and when the laborer is not economically 
subject to the employer he is, under his actual con- 
ditions, the gainer by the transaction. He is not 
in a position to take risks, and therefore gains by 
obtaining a sum down instead of the somewhat 
doubtful value which he might obtain after waiting. 
Theoretically, the laborer, who is not paid till the 
end of the season or till the product is marketed, 
ought to be in a better position than the man who 
is compelled to make his employer take the risks; 
but practically he is not ; for, in such cases, the la- 
borer, being, as a rule, economically subject to his 
employer, is compelled, like a man in his necessities 
having recourse to a usurer, to accept whatever terms 
the employer may make. 

Whether wages are paid out of capital or not is 
largely a question of the definition of capital; and, 
in the sense in which we have taken that term, 
they are not paid out of capital. On the contrary, 
if a paradoxical use of language may be permitted 



Capital and Wages. 59 



for a moment, the laborer, instead of being sup- 
ported out of capital, parts with capital (" inchoate 
wealth "), actual or to be created, in order to obtain 
an income of commodities in a form ready to satisfy 
human wants. His wages are paid out of the in- 
come of society. This fact is concealed from us by 
the intervention of money payments. The laborer 
receives a money wage directly at the hand of his 
employer and, although the distinction between 
money wages and real wages is always made, it is 
not always adhered to. Because the laborer re- 
ceives his money wages from his immediate em- 
ployer, it is generally taken for granted that he is 
paid out of the funds of his employer; and if we 
confine our attention to money wages — a matter 
of little importance for the theory of wages — the 
fact is as represented. From an individual point of 
view, the payment made by an employer to his em- 
ployees is a final transaction, but, from a social 
point of view, it is only a step towards the final 
transaction. In the payment of real wages the em- 
ployer may be only an intermediary or agent : the 
real payer of wages is the owner of the stock of 
consumption goods. 

The proposition that wages are paid out of capi- 
tal is, perhaps, not the best way of expressing the 
dependence of the laborer on his employer; and, in 
consequence of the inadequate expression, in the 
Wages-Fund Theory this dependence is somewhat 
exaggerated. Mill, who has given us the standard 
exposition of the theory, defines capital by reference 



6o The Bargain Theory of Wages. 



to the intentions of the owner of capital ; and this 
definition, combined with the natural habit of re- 
garding the payment of money wages as a final 
transaction, leads to the characteristic and central 
doctrine of the Wages-Fund Theory, that the money 
resources which the employer has set aside for the 
payment of wages is a determinate amount. With 
the version of the theory that finds in it only a state- 
ment of the wages problem we need not trouble. 
We can find our own statement of the problem. 
The Wages-Fund Theory stands or falls according 
to the answer to the question whether the wages 
fund is predeterminate and fixed. That the fund is 
determinate ex post facto needs no long demonstra- 
tion : so the popular and unmodified version of the 
theory is the only version we need consider. 

According to this version, an employer, looking 
to the resources at his command and to the nature 
of the productive process in which he is engaged, 
makes up his mind that so much and no more it will 
be profitable for him to spend in hiring labor — in 
much the same way as a householder, looking to 
the size of his income and the domestic necessities 
of his household, decides whether to engage one 
or two or three domestic servants. Whatever the 
hesitation when the critical question is propounded, 
there can be no doubt that it was generally assumed 
that not only no more but no less than "this prede- 
termined amount would or could be spent in hiring 
labor. This definite amount was earmarked for a 
definite purpose; and — an important feature often 



Is the Was:es Fund Predetermined? 6i 



overlooked by the critics of the Theory — since the 
regulation of industry was in the hands of the capi- 
taHst, no change could occur which might induce 
him to alter his intention. Under changed conditions 
his intentions would be different ; but, in the normal 
course of industry, his intentions determined, and 
were not determined by, the condition of industry. 
It was an easy matter for critics who accepted the 
individual limited standpoint of the Wages-Fund 
Theory and treated only money wages, to demon- 
strate, as soon as suspicion of the validity of the 
Theory had been aroused, that the wages fund was 
neither predetermined nor fixed, that employers did 
not pay wages from a royal desire to carry out their 
intentions, but from the more sordid desire of se- 
curing for themselves the surplus of the product 
over the advances made, that although wages might 
be advanced temporarily by the employer, the ad- 
vances were measured by the anticipated price to be 
realized for the product, and, finally, that the im- 
portant factor^to be considered was not the intention 
of the capitalist, but the efficiency of the laborer. 
On all of these points the critics of the Theory had 
an easy but a barren victory. They had an easy 
victory, because they could show that the capitalist 
never acted as he did out of sheer indifference, or to 
exhibit his strength, but from an economic motive. 
They had a barren victory, because they confined 
their attention mainly to money wages — as no doubt 
they felt justified in doing, in criticising a theory 
which confined itself, in the main, to money wages. 



62 . The Bargain Theory of Wages. 



The criticism was perfect, but its results were purely 
negative. It is easy to show that the money which 
an employer is prepared to spend in wages is neither 
fixed nor predetermined. Theorists neglected alto- 
gether, as Mr. McLeod, among others, has pointed 
out, the influence of credit in swelling the resources 
of the employer; and when this influence is taken 
into account the Wages Fund cannot be regarded 
as fixed. It is not predetermined because industry 
is not stationary, and not governed exclusively by 
the intentions of the employers. Industry is con- 
stantly fluctuating and since the employer never 
acts qua employer without an adequate economic 
motive the intentions of the employer will change 
with every change in the prospects of industry. 

But all this valid criticism is beside the question, 
which is one of real wages. The source from which 
wages must be paid is the stock of consumable 
commodities, which is indeed continuously being 
exhausted as the commodities are used for the 
satisfaction of human wants, but also continually 
replenished from the volume of commodities near- 
ing completion. This stock is, none the less, for any 
given period a fairly definite amount. Production 
is spread over a long period, and no demand, how- 
ever urgent, can indefinitely increase the amount of 
all commodities. The process of production may, 
under pressure of increased demand and higher 
prices, be somewhat shortened ; and since many of 
the agents and much of the material of production 
can be used in more directions than one, particular 



The Trtie Wages Fimd Fixed. 63 



kinds of commodities may be produced in vastly in- 
creased amounts ; yet the total effect on the real in- 
come of society, i. c, on the stock of consumption 
goods, is not very great. The income of society, 
at any given moment, may be taken as an approxi- 
mately fixed amount ; and, interpreted in this sense, 
the Wages Fund may be regarded as a proportion 
of a fixed amount. It is true that on this account 
the position of the wage-earners is no worse than 
the position of the receivers of rent and interest. 
These, too, are paid out of a fixed amount. 

The original Wages-Fund Theory asserted that 
the amount of wealth which goes to labor is deter- 
mined by the employer; and even in the modified 
interpretation of the Wages Fund the statement 
remains substantially true, if we extend the applica- 
tion of the term capitalist employer. The stock of 
consumable commodities belongs absolutely to its 
owners, whoever they may be. All claims on it by 
those engaged in its production have been brought 
out. The laborer has long since bartered his share of 
the final and completed product for necessaries of life, 
it may be, before the process of production was near- 
ing completion. The employer has sold out his 
rights that he might meet his obligations and con- 
tinue his business; and the product belongs finally 
and completely to its owner. The class of owners 
need not necessarily be, as it is under modern in- 
dustrial conditions, limited in number; but whether 
the class be large or small, the completed product 
belongs to it to do what it likes with its own, to 



64 TJic Bargain Theory of Wages, 



consume it, to hoard it. or to waste it. If, liowever, 
any member of the class choose to postpone the 
use of part of the share of this income of consumable 
commodities which has, in the economic course, been 
assigned to him, he leaves so much more of the 
stock for other owners or non-owners to use. The 
end of the process has been reached, and consuma- 
ble goods must be consumed or wasted. If he does 
not consume these commodities himself, he leaves 
them for some other to consume; and if, from any 
cause, he prefers to postpone his consumption, there 
are others ready and willing to step into his place. 
No man, however, if we omit the case of charity, is 
willing to postpone immediate satisfaction, except 
in return for a proportionally greater satisfaction in 
the future; and the only wa}' in which a man can 
postpone his immediate satisfaction, and secure a 
greater amount of satisfaction in the future, is by 
exchanging a certain amount of completed wealth 
or income for an amount of inchoate wealth or capi- 
tal which, when carried to completion, will repay 
him for the sacrifice involved in the postponement 
of present satisfaction. If he is so minded he will 
always, owing to the conditions of production, find 
many willing to exchange inchoate, or less than in- 
choate, Avealth for present income of consumption 
goods. Now', although in the aggregate the savings 
of the working classes seem enormous, these, yet, 
form a very small fraction of the total savings of 
society, and, under the present conditions of unequal 
distribution of wealth in society, we must look for 



The A mount of the Wages Fund. 65 



saving only from those whose object, in common 
parlance, is to make money. The members of the 
employing class alone, taking this term in a wide 
sense to include bankers and investors, are able and 
willing, to any appreciable extent, to postpone en- 
joyment and buy capital or inchoate wealth with in- 
come. The laborers, on the other hand, as we saw, 
are willing, indeed, are forced by the necessities of 
life, to exchange capital for income, because other- 
wise they would be unable to command the com- 
modities which will satisfy their present wants. The 
laborer has long ago parted with his share of present 
income under pressure of necessity, and he must 
now purchase a share in the present income by part- 
ing with his claims on a yet distant product. Con- 
sequently the price which he is likely to receive for 
his claims is the amount of their consumption of the 
actually finished commodities which the owners are 
willing to postpone. The measure of the Wages 
Fund is thus set by the degree of the willingness of 
the owners of consumable commodities to postpone 
their consumption. This fact is not clearly enunci- 
ated in the proposition of the Theory that the inten- 
tion of the capitalist determines the Wages Fund; 
because, owing to the present unequal distribution 
of wealth and those facts of life set forth in the law 
of diminishing utility, the primary owners of the in- 
come of society could not possibly consume the 
whole of it. The greater part of this income con- 
sists of commodities which can satisfy only the ele- 
mentary physical wants; and, since the present 



66 The Bargain Theory of Wages, 



owners are few in number, they must postpone part 
of their consumption and would do so whether they 
received a " reward for their abstinence " or not. 
The sociaHsts have poked rather laborious fun at 
the author of this famous phrase and have justly 
pointed out that, in the present distribution of 
wealth, the postponement of present consumption 
is a necessity, not a virtue. The capitalist, or, as 
we had better call him, the final owner, is almost as 
much bound to buy future income as the laborer is 
to buy present income. Still, since the laborer has 
no primary share in this present income, the amount 
of it which laborers can receive as wages is strictly 
determined by the amount of present consumption 
that the owners, under whatever conditions, are will- 
ing to postpone. 

We are now in a position to discuss the bearing 
of consumption on the wages question. It is often 
asserted, in defiance of Mill and the classical econo- 
mists, that a demand for commodities is a demand 
for labor, and a practical corollary is sometimes 
added that the payment of high wages to the work- 
ing classes results in the general prosperity of in- 
dustry. In the main the answer of the classical 
economists was correct ; although they did not, per- 
haps, develop all that was implied in their answer, 
that a demand for commodities could only change 
the direction of industry, because demand and sup- 
ply are but the two sides of the one shield. A 
change of the direction of industry, however, has 
more than the merely formal consequences which 



'*A Demand for Commodities^ 6y 



alone they seemed to recognize. An increased de- 
mand for the commodities consumed by the working 
classes, in consequence of higher wages being paid, 
will change the direction of industry to more profit- 
able channels. A certain portion of the increment 
may be spent on working-class luxuries of food and 
drink, but the greater part will be wisely expended, 
especially if the rise in wages is of some duration. 
The result will be, since the working classes form 
the great majority of the nation, and their wages 
allow them to satisfy only the elementary and uni- 
versal wants, that production, owing to the increased 
demand, will be conducted on a more economical 
basis. The limit to the division of labor is the area 
and extent of the market ; and where fashion and 
caprice rule, division of labor cannot be carried very 
far. A working-class demand is not subject to 
fashion and caprice, individual preferences being 
offset, owing to the area of the market ; and, conse- 
quently, new and more economical processes may be 
commenced in the assurance of a steady market. 
Therefore, when a change in the demand arises from 
higher wages paid to the working classes, there may 
be a great gain to society as a whole. Except in 
this case, however, a demand for commodities is not 
a demand for labor. A demand for commodities, 
taking commodities in the sense of goods ready for 
consumption, implies a large consumption of real 
income by its immediate owners; and, as we have 
seen, the amount which is paid in wages depends on 
the extent to which the final owners of the real in- 



68 The Bargain Theory of Wages. 



come of society are prepared to postpone consump- 
tion. If the increased demand of a section of the 
owners of this real income induce another section of 
the owners to postpone more of their own consump- 
tion than they would otherwise have postponed, the 
net result may be an increased demand for labor; 
but then the increased demand for labor arises from 
the greater willingness to postpone consumption. 
More of the real income of society, not less, is 
offered in exchange for the labor which will create 
those forms of consumption goods which are most 
in demand. But if the increased demand for com- 
modities be universal, if, that is, there is less willing- 
ness on the whole on the part of the owners of real 
income to postpone consumption, the result will be 
not an increase in the demand for labor but a diminu- 
tion of the demand. Since the laborers who own 
practically none of this real income must be sup- 
ported out of this income they will have to offer 
their share in the future income of society at a 
greater discount, and the result will be a lower rate 
of wages. That this result never occurs is due to 
two facts: (i) that owing to the law of diminishing 
utility the owners of real income — made up, as it is, 
largely of goods capable of satisfying only the most 
elementary wants — cannot possibly consume the 
whole of it, and (2) that, in one large section of the 
owners, the instinct for postponement (with a view 
to making money) is much stronger than the instinct 
which would lead them to consume the whole of 
their share of this income. The owners of the real 



Luxurious Expenditure and Wages. 69 



income are roughly divisible into two classes, the 
spenders and the savers ; and an increased demand 
from the spenders (if that be possible for them with- 
out selling part of their right to a share in the future 
income of society) creates often so much the more 
inducement to the savers to postpone their con- 
sumption. We can thus see clearly how far the 
luxurious expenditure of the rich does and does not 
benefit the working classes. In so far as it induces 
the other section of the owners of income to post- 
pone a larger amount of their consumption it will 
benefit the working classes : in so far as it means a 
net diminution of the amount of postponement and 
a net increase of the immediate consumption of in- 
come by the immediate owners such expenditure 
materially injures the working classes. On the 
other hand, an increase of wages which leads to a 
steadier and wider demand for that class of goods 
in the production of which the law of increasing 
returns is operative may induce the saving section 
to save more and thus increase the amount they 
are willing to expend in the purchase of the in- 
choate wealth which belongs or will belong to the 
laborer. 

The third proposition is to the effect that this 
Wages Fund is distributed amongst the laborers 
solely by means of competition and the rate of wages 
depends on the proportion between capital and popu- 
lation — both these terms being theoretically under- 
stood as elliptical expressions. We need not attempt 
to show that however completely wages are deter- 



70 The Bargain Theory of Wages. 



mined in the present day by competition, historically 
law and customs have been more important in the 
determination of wages. Had the attention of 
Ricardo and of Mill been directed to the history of 
labor they would probably have been ready enough 
to admit the existence of other determining forces 
than competition; but they would probably have 
continued to treat the wages question as they did. 
They would have contended that we can be practi- 
cally interested only in the (to them) undoubted 
tendency of economic progress to bring about that 
condition of competition their theory postulated. 
The stage of law and custom was, they considered, 
an imperfect development : the stage of competi- 
tion, though, perhaps, not realized completely any- 
where, was the end towards which things were 
moving. On the other hand, we need not attempt 
to discuss whether competition is realized in actual 
circumstances, how far it ought to be realized, or 
how far it is merely a transitional stage between 
custom and combination. 

What we do require to discuss is the ultimate as- 
sumption that lies behind this third proposition that 
labor is a commodity subject, when it is bought and 
sold, to all the laws which govern the sale of other 
commodities. The Wages-Fund Theory not only 
treats labor as a commodity, but, if we may take 
Mill's exposition as our standard, as tJie commodity. 
The value of labor, according to Mill, is always a 
market value, and the fluctuations of this market 
value are not checked, as the fluctuations in the 



Labor as a Commodity. 71 



value of most commodities are, by the cost of pro- 
duction. When a commodity is of such a nature as 
to " admit of indefinite multipHcation," * the fluctu- 
ations of its market value from its cost of production 
are within very narrow limits ; but so far as the 
" exceptional case " of " commodities not suscepti- 
ble of being multiplied at pleasure " the fluctuations 
of the market value are in no wise restricted. " The 
principle of the exception stretches wider and em- 
braces more cases than might at first be supposed." 
" Finally," he continues, " there are commodities of 
which, though capable of being increased or dimin- 
ished to a great, and even to an unlimited, extent, the 
value never depends on anything but demand and 
supply. This is the case in particular with labor." f 
Labor, then, is a commodity subject, in an ex- 
ceptional degree, to the law of demand and sup- 
ply. Like the commodities exchanged in Literna- 
tional Trade, where industrial competition does not 
enter, it is one of the simplest cases of value. The 

* Principles, Book III., c. 2, p. 272. 

f Professor Marshall points out that Mill, under the influence of 
his social sympathies, separated the theory of distribution from the 
theory of exchange and, owing to the remarkably short time in which 
the Principles were written, failed to co-ordinate the different parts 
of his general theory. Certainly, in the second book, wages are said 
to be determined by the proportion between capital and population — 
the demand and the supply of the Wages-Fund Theory ; but, in the 
third book, he substitutes equation for proportion and shows that 
demand is not independent of but dependent on supply, being simply 
the quantity demanded at a given price. The consistency or the 
inconsistency, however, of Mill's theories and expressions is not our 
object. 



72 The Bargain Theory of Wages. 



supply of labor is not determined by competition, 
but by an extraneous force, the principle of popula- 
tion ; and the supply is on the market and must be 
disposed of regardless of sacrifice. The demand 
being determined by the intentions of the employers 
may also be regarded as fixed ; and the price of 
labor, therefore, depends, simply and unreservedly, 
on the proportion between supply and demand. 
The value of labor, therefore, differs from the values 
of other commodities in not being subject to steady- 
ing influence of the cost of production.'^ 

The value of labor is certainly not determined as 
other values are; but it is not therefore determined 
more simply. On the contrary, it is a more com- 
plicated case of value. Factors which have been 
eliminated from the determination of the value of 
other commodities are still present in the determina- 
tion of the value of labor. Commodities, probably 
all commodities but labor, are placed on the market, 
where the value is determined mainly by demand. 
The seller may come to the market with a definite 
idea of what he regards to be the proper supply 
price of the commodity he offers for sale, and may 

* In a sense, it was necessary for the cost of production theory of 
value that labor, at least, as one of the ultimate elements in the cost, 
should have a value directly determined, so that it might prove 
acceptable as one of the determinants of the permanent value of the 
commodities. The cost of production can be regarded as a final 
analysis of value only if the respective elements of the cost are fixed 
and independent values. The method of making labor a fixed and 
independent value by regarding it as determined by the equation of 
supply and demand does not commend itself, 



Has Labor a Supply Price ? 73 



withhold a portion of the supply because the price 
he can obtain is lower than his supply price ; but it 
is the demand which determines whether he shall 
withhold or not. Generally speaking, and for most 
commodities, the seller is forced to accept the price 
fixed by demand. The commodity may be perish- 
able and, in that case, it must be sold regardless of 
cost. In every case competition has cut the margin 
of profit so close that it is a question whether the 
seller can afford to stand out of his money by re- 
fusing to sell. The Theorists, strong in the sense 
of their first proposition, insist that the laborer is 
also in the condition of having a commodity to sell 
which his necessities will not allow him to withhold 
from the market. He must sell; for his goods are 
peculiarly perishable. Hence it might be argued 
that the supply price of labor is, so far as its effect 
on the market price goes, practically non-existent ; 
and the market price will be determined from the 
side of supply alone at such a figure as will carry off 
the whole of the supply. But the case is not so 
simple as it is thus made to appear. The supply 
price of the commodity has little effect on the 
market price; simply because it is only a question 
of relative profit whether the commodity is sold or 
not. The seller may desire a higher price, but his 
necessity of meeting his obligations may compel 
him to place his whole supply on the market. The 
only reason that he can have for withholding part, 
or the whole, of his supply, is the question of rela- 
tive profitableness. The higher price which he 



74 The Bargain Theory of Wages. 



hopes to obtain may more than make up for the im- 
mediate loss incurred by refusing to sell. There is, 
as a rule, no other reason why he should withhold. 
He has no personal attachments to the commodity 
to induce him to withhold it. To withhold it is to 
incur extra expense and extra risk, an allowance for 
which must be deducted from the higher price to 
be afterwards realized before the net profit appears. 
Accordingly, since the margin of profit is generally 
cut very close by competition, the supply will be 
seldom withheld and the demand price will be the 
market price. The laborer, however, is in an entirely 
different position. His labor, it is true, is essen- 
tially a perishable commodity which must be sold at 
once, if it is to be sold at all ; and the laborer must 
sell in order to live. On the other hand, he is in- 
tensely interested in what he does sell. Labor in- 
volves disutility ; and, moreover, when the laborer 
sells his labor he must, so to speak, deliver it him- 
self. The laborer incurs no expense and no risk in 
withholding his labor; and, if his powers are not 
always recruited in idleness, by withholding he es- 
capes the sacrifice involved in labor. If it were not 
that he must sell in order to live, his position in the 
labor market could be exceptionally strong; and 
even when he is thus compelled to sell, and sell at 
once, his personal feelings, as well as his home and 
place attachment, enable him to demand better 
terms. Adam Smith's famous statement of the im- 
mobility of labor does not justify the conclusion 
usually drawn from it, 



The Disabilities of Labor. 75 



" Such a difference in prices, which, it seems, is not 
always sufficient to transport a man from one parish to 
another, would necessarily occasion so great a transpor- 
tation of the most bulky commodities not only from one 
parish to another, but from one end of the kingdom, 
almost from one end of the world to the other, as would 
soon reduce them more nearly to a level. After all that 
has been said of the levity and inconstancy of human 
nature, it appears evidently from experience that man is 
of all sorts of luggage the most difficult to be trans- 
ported." * 

The usual inference is that the wages of the laborer 
must suffer on account of his local attachments. 
In individual cases this may be true; but, on the 
whole, the general and ultimate result is not so seri- 
ous as it might be. These home and place attach- 
ments form a large part of our personality and on 
them is based to a great extent our self-respect. It 
is not an extravagant claim to make that the self- 
respect, even of a laborer who must work, has a 
strong influence on wages. If the worst come to 
the worst the self-respect of the laborer would not 
stand ; but the worst seldom comes to the worst. 
The competition between master and man is rarely 
a combat a outrance. The employer may know 
that, if he tried, he could coerce the laborer into 
submission ; but the known obstinacy or firmness of 
the laborer may prevent him from trying. The 
larger the number of laborers whose self-respect is 
threatened the greater the influence of this factor in 
* Wealth of Nations, p. 31. 



76 The Bargain Theory of Wages. 



determining the wages paid. The conflict between 
capital and labor is not a personal conflict, but a 
competition to determine the share of each in the 
results of their common labor. The laborer obtains 
a larger wage than he might be forced to accept be- 
cause the motive for paying wages is not the dis- 
bursement of a fund, but the making of a profit. 
To compel an unwilling laborer to work for less than 
he thinks he is worth means delay to begin with 
(and time is money), and, in the second place, it 
generally means, also, less effective work. Econo- 
mists all admit that moral character enters into 
efficiency; and an unwilling laborer, working under 
a supposed grievance and an outraged sense of jus- 
tice, is not likely to be highly efficient. Wages are 
determined from the employer's point of view by 
the surplus he hopes to realize after he has repaid 
to his capital account his expenditure on wages; and 
the surplus may be as large when the efficiency is 
great, though the wages are high, as it is when, out 
of a small product, low wages are paid. 

Labor, then, if it be a commodity, is a commodity 
of a peculiar kind. It is a commodity which has a 
definite supply price — a price which, moreover, it 
may be just as profitable for the buyer to pay. The 
buyer of labor, omitting the case of service, buys to 
produce, not to consume ; and he acquires no passive 
instrument of an unvarying efficiency. He acquires 
an instrument of production whose efficiency is de- 
termined, in part, by moral considerations, an in- 



Labor as a Commodity. 77 



strument which may be wasteful, or provident and 
careful, in the use of other instruments and agencies 
of production. The efficiency of passive instruments 
depends on the laborer. Consequently, when labor is 
bought, the purchaser takes into account the differ- 
ence between labor and other commodities, and is 
therefore the more willing to make moderate con- 
cessions if by so doing he can remove all unwilling- 
ness and sense of unfairness from the mind of the 
laborer. This is the reason why a body of laborers, 
who must work but yet are unwilling to accept less 
than their self-respect tells them they are worth, are 
not forced by their necessities to accept starvation 
wages. The employer knows what he has to pur- 
chase, and acts accordingly. 

The value of labor, therefore, is not determined as 
the value of all other commodities is; because labor 
is not a commodity in every respect similar to other 
commodities. Labor is a commodity which has re- 
tained a definite supply price to a much greater ex- 
tent than any other commodity has; and this supply 
price, under the motives and conditions of the hiring 
of labor, cannot be without effect on the resultant 
market price, because, in the case considered by the 
Wages-Fund Theory of hired labor, the demand 
price of labor is fixed not with immediate reference 
to the utility of the purchase, but to the utilities, or 
the command of utilities, which labor can produce 
in excess of those handed over to the laborer as his 
reward. 



78 The Bargain Theory of Wages. 



The Wages-Fund Theory, accepted uncritically 
for the hundred years of its growth and maturity, 
was in the fullness of time suddenly criticised and 
rejected ; and in its stead reigned the productivity 
of labor theory. 




CHAPTER III. 



THE PRODUCTIVITY OF LABOR THEORY. 



THIS theory was developed as a criticism of the 
dominant Wages-Fund Theory; and, in the 
survival of references and criticisms and in the gen- 
eral point of view which has been adopted on account 
of a too exclusive attention to the theory criticised, 
continues to bear evident marks of its polemical 
origin. The Wages-Fund Theory, was, in its origin, 
based on Ricardo's practical limitation of capital to 
the food, etc., advanced to the laborers; but, as the 
theory became more systematic, and was rounded 
off for the sake of illustration, capital came, for the 
purposes of the theory of wages, to be spoken of as 
if it were synonymous with money ; and the Wages- 
Fund Theory became merely a theory of money 
wages. The distinction between real wages and 
money wages was duly made; but it had no further 
place in the discussion. One of the earliest objec- 
tions raised — and the fact that it was not raised 
earlier is an evidence of the firm hold the Wages- 
Fund Theory had on the minds of the men of the 

79 



8o The Bargain Theory of Wages. 



generation between Ricardo and Mill — was to the 
effect that the wages fund need not be absolutely 
determinate and predetermined ; for the banks, by 
means of cash credits, enabled an employer, when 
necessary, to increase the wages fund, notwithstand- 
ing his former estimate and " intention." The 
reference in this criticism is obviously to money 
wages ; and subsequent criticism followed the same 
lines. The distinction between money wages and 
real wages was still drawn ; but, in the statement of 
the general problem, in the solution, and in the 
methods by which the solution is obtained, the sup- 
porters of the new theory, whether as critics of the 
old or expositors of the new, practically kept money 
wacfes alone before their minds. For this is the 
meaning of the iteration of illustrations showing 
that labor is often advanced to the capitalist and 
that the product in numberless instances is sold be- 
fore the wages of the laborers are paid; and the 
meaning also of the total neglect of the fact that if 
labor is paid out of the product it cannot be paid 
out of the product of its present employment, but 
out of the product of past employment. As far as 
money wages is concerned, everything may be 
yielded to their contentions — except the immediate 
dependence of the laborer on his employer, through 
whom he receives his derivative share of real income. 
The wages fund, in the money sense, is not pre- 
determined, is not limited; and the share which 
labor receives is not a question of the rules of arith- 
metic. We may as readily admit to the critics that 



Wages-Fund Theory and Money Wages. 8 1 



the motive for paying wages is the surplus of the 
product which will remain in the hands of the em- 
ployer when the cycle is completed. The employer, 
as we saw, is generally not the ultimate banker, but 
the broker; and, if he does not anticipate good 
terms when he rediscounts, neither can he offer good 
terms. The difference between the rate he pays 
and the rate he charges is the sole motive for making 
advances at all. This, expressed in other terms 
than they employ, is true and valid as a criticism of 
the Wages-Fund Theory, but it does not advance us 
beyond the theory. It was well, perhaps, to show 
that even on its own ground the Wages-Fund 
Theory may be overthrown ; but this is, after all, 
only a negative contribution to knowledge. The 
real problem deals with real wages ; and these are, 
as we saw in the last chapter, evidently drawn from 
a practically fixed and predetermined fund ; and, as a 
solution of the real problem, the productivity theory 
is simply an ignoratio elenchi. 

But we must follow the example of the founders 
of this theory in their criticism of the Wages-Fund 
Theory, and discuss the new theory on its own 
grounds before we can proceed to the statement of 
a theory which better explains the facts of modern 
industrial life, and offers a more hopeful solution 
and answer to the wages question. 

In the first chapter we found, in the perplexities 
which surround the relation between wages and the 
standard of living, the difificulty of determining by 
the method of concomitant variations the direction 



82 The Bargain Theory of Wages. 



of the causal relation ; and the same difficulty meets 
us again on the threshold of the third theory. There 
the difficulty was to decide between the/r^ and the 
con, between the theory and its critics : here the diffi- 
culty is to decide between two rival theories each en- 
titled apparently to call itself the productivity theory. 
High wages and large output are causally connected. 
This much has been established beyond possibility 
of doubt. Statisticians have proved the connection 
by facts and figures drawn from all countries and all 
industries and under the most diverse conditions. 
Historical and contemporaneous records have been 
drawn upon so liberally that sometimes we can 
hardly see the wood for the trees. But which is 
cause and which effect has not been so clearly proved. 
Whether is high wages the cause of the large output 
or the large output the cause of high wages ? This 
is not clear; for we have two rival theories each 
appealing to the arbitration of the same facts, and 
some writers varying from the one theory to the 
other, without recognizing the essential difference 
between them. The one theory maintains that high 
wages precede and give rise to an increased product 
which, in time, provides the justification of the 
higher wages. The other is the converse of the 
first, and asserts that high wages are paid where the 
efficiency of labor is great, and are paid only because 
the efficiency is great. Since the rival theories ap- 
peal to the same facts, the divergence between them 
appears more clearly in the practical conclusions 
than in the theoretical statements. The exponents 



Tivo Versions of the Productivity Theory. 83 



of the first are, generally, to be found among those 
who desire State or municipal interference on behalf 
of labor; and their appeal is to history to justify 
what they admit to be a leap in the dark. They 
are distinguished, at present, by their advocacy of a 
shorter working day or of profit-sharing and other 
schemes to improve the relations between employers 
and employed. The supporters of the second ver- 
sion are the most ardent promoters of industrial and 
technical education and other direct and indirect 
methods of increasing efficiency; because they as- 
sume that, since wages are paid out of the product, 
competition will transfer to the working classes the 
whole of the increase of the product due to increased 
efficiency. 

The first, which is probably the version of the 
theory most generally adopted, on a first analysis, 
seems to be little more than a less simple and naive 
form of the subsistence theory. The proposition on 
which it rests is that higher wages can be paid be- 
cause the greater efficiency which results from the 
higher wages will serve to recoup the employer. It 
is admitted, in all but terms, that the advance of 
wages is a leap in the dark, but a leap experience 
shows to be more than mere rashness. The higher 
wages, the argument runs, will enable the laborer to 
eat better food and wear better clothing and live 
generally under more favorable conditions. So sure 
are the supporters of this version of the theory that 
there is a very close and definite relation between 
better living and better work that they have neither 



84 The Bargain Theory of Wages. 



scrupled nor hesitated to indulge in a good deal of 
miscellaneous condemnation of those short-sighted 
employers who cannot, or will not, read the lessons 
of history. 

Yet the very facts which they adduce in support 
of their contention seem to afford some sort of justi- 
fication for the " short-sighted " employer. An 
employer may recognize fully that, in the long run, 
higher wages might not be a bad investment, and 
yet be unable and unAvilling to make the experiment. 
The laborer sells his labor, but he remains his own 
master; and, when his contract has expired, may take 
himself off when he pleases. We do not hear so 
much nowadays of Jeshurun waxing fat; but the 
danger of the sequel may reasonably enough impress 
the mind of a cautious employer. He pays better 
wages and, after a time, the laborer is able to do, 
and probably does, better work; but before the em- 
ployer has been fully recouped for his advantages 
the laborer may take himself off. It is true that 
there is not very much reason why he should change 
his employer; but the chances and changes of life 
are infinite. The experience of other employers and 
of other countries and the evidence from industrial 
history, then, may render the successful issue of the 
experiment very probable ; but they do not guaran- 
tee the individual employer against risk. Therefore, 
although it may be admitted that, where wages are 
very low, the return to the investment may come so 
quickly that the risk is very small, it does not follow 
that, when wages are not extremely low, the result 



The Leap in the Dark. 85 



will be so immediate and so favorable. Similarly, 
although the experience of England in the working 
of the Factory Acts and the shortening of the hours 
of labor may justify experiments in Germany and in 
the United States, it does not, and cannot, prove 
that the next experiment in England in the same 
direction will be a success. There is some limit to 
a profitable reduction of hours as there is to an eco- 
nomical intensification of labor; and it may be, as a 
witness before the Canadian Labor Commission put 
it, that a further reduction " might be the last straw 
which sometimes breaks the camel's back." * 

The opinion of the witness as to the particular 
limit may, or may not, be correct, but there is no 
doubt that there is a limit. The larger the number 
and the greater the extent of the earlier experiments, 
the more uncertain will be the issue of the next one. 
The statistics quoted show that there is some good 

* Canadian Labor Commission, Ontario Evidence, p. 744. Mr. 
Tuckett (tobacco manufacturer, Hamilton). Witness had reduced 
the hours in his factory from ten to nine without making any reduc- 
tion of wages or finding any reduction in the product. 

" Q. Having found the nine-hour movement profitable and satis- 
factory, could you not reduce it still more with the same result ? A. 
It might be the last straw which sometimes breaks the camel's back. 

" Q. You think that nine hours is a fair limit? A. I think so; 
from what I have seen and heard I think it has proven to be about 
the limit. 

" Q. You have not tried any other? A. Of course, I am only 
speaking of what I have read in the papers of the United States. I 
find that the jumping into the eight hours has caused a great deal of 
trouble ; it is going too far the other way. There is always a happy 
medium." 



The Bargain Theory of Wages. 



ground for hesitation. When wages are arbitrarily 
raised, or when hours are reduced, the output does 
not always increase proportionally ; and unless the 
efficiency of the laborer increases at once, and pro- 
portionally to the rise in his wages, or unless, in 
spite of the reduction of the hours, the output is at 
least maintained, then the profits of the employer 
suffer. However willing the employer may be to 
wait to recoup himself, the conditions of competition 
may not permit him so to wait. If he is carrying on 
business on a borrowed capital and has to meet obli- 
gations from day to day, the margin is probably 
already cut too close to allow him to lock up part of 
his resources in the hope of a somewhat uncertain re- 
imbursement. If, moreover, in the market he has 
to meet competitors who are not making any experi- 
ment and not incurring any loss, even for the time 
being, it may be impossible for him to maintain his 
ground, and thus a temporary loss may turn out to 
be final and irretrievable. The English manufacturer 
fears the competition of the foreigner, and the New 
England manufacturer the competition of the new 
mills in the Southern States ; and they declare that 
in face of this competition they cannot safely lock 
up part of their resources. If a manufacturer hesi- 
tate to .add one other element of uncertainty to 
business, he is at any rate not open to the charge 
of being short-sighted. An employer, strong in his 
resources, strong in the hold which he has on his 
customers, and strong also, perhaps, in the attach- 
ment of his men to his service, may be able to make 



Fliict7iations of Wages and Output. 87 



such experiments ; and in this case, as in many- 
others, as Professor Walker has shown,* it is the in- 
competent employer who is the worst enemy of the 
working classes. 

The higher the wages, and the higher the standard 
of comfort, the more uncertain does it become that 
the standard of efficiency will rise with every rise 
of wages, however slight, and rise correspondingly. 
Brentano, however, takes the position that they do. 
In his Hours, Wages, and Production, he claims that, 
in the years 1872, 'ji, 'y^, production increased 
and then diminished as watres rose and fell : 



^fc>^ 



" According to the official records, the year of the 
great rise in wages in the largest state mines, 1872, was 
followed by a considerable increase in the average out- 
put of the workmen. . . . Another official investi- 
gation, entitled ' Contribution to the Statistics of the 
Dortmund Mining District,' by a mining ofificial named 
Hiltrop, showed in fact that, in the above-named mining 
district, the general fall of wages in 1874 was accom- 
panied by a diminution of production." f 

The figures undoubtedly show that the output 
increased ; and we know that there was a rise in 
wages (the figures of variations in wages are not 
given, in this instance, for comparison); but we 
have still to settle which was cause and which effect. 
The fluctuations of wages in these years followed 

* Walker, Political Economy, Part IV., chap. iv. 

f Brentano, Hours, Wages, and Production, pp. ri, 12, 



88 The Bargain Theory of Wages. 

each other quickly. Higher wages can lead to in- 
creased efficiency only if they are spent in such a 
way as to improve the physical condition of the 
workers; and the tradition of the extravagant ex- 
penditure of the working classes during these years 
— feeding their bull-dog pups on cream, as the Mid- 
lothian miners were said to do — shows that the higher 
wages were not necessarily so spent. A sudden in- 
crease of wages, unfortunately, frequently means an 
increase of dissipation. Chancellors of the Exchequer 
have, on occasion, lamented with somewhat chas- 
tened sorrow the increase of the revenue from ex- 
cise during years of prosperity; which means that 
the increased wages are not being spent in a manner 
which will increase efficiency. 

The causal connection, in this instance, is almost 
surely from production to wages. Prices rose and 
the mine-owners and other employers, naturally de- 
siring to take full advantage of the rise, endeavored 
to increase their output. The employees were 
aware that prices were rising and demanded their 
share; and the employers, rather than face labor 
troubles at such a time, yielded the demand, being 
willing to sacrifice a part of the increased profit 
rather than lose the whole. 

Brentano's argument is evidently based on the 
assumption, which we cannot admit, that the laborer 
at all times works up to his efficiency, and that an 
increase of his output must be due to an increase of 
his efficiency. But the laborer does not, as a rule, 
do his best; and his output might be largely in- 



Output and the Standard of Efficiency. 89 



creased without any change in the standard of 
efficiency. If we take the actual output as a measure 
of efficiency, we are stating a merely identical propo- 
sition when we assert that the increased output is 
due to a rise in the standard of efficiency. An in- 
crease of wages can cause a rise of efficiency only if 
each laborer is doing his best ; and the trade-union 
and general working-class objection to the man who 
works his hardest, which Mr. Schloss describes,* 
shows us that we cannot measure efficiency merely 
by output. An increase of the output might occur, 
even without a rise in wages and a consequent im- 
provement of the standard of living, if, in some way 
or other, by a change of the method of remuneration, 
as in profit-sharing, for instance, the laborer could 
be induced to work up to his efficiency. There may 
be other methods, but the surest method of inducing 
a man to the best that in him lies, is to offer him 
the prospect of higher wages. This is what actually 
happened in the early seventies. The mine-owners 
paid higher wages and got more work out of their 
laborers ; but the miners did not spend the increase 
in making themselves more efficient, and so it came 
about that, when depression occurred, and the mine- 
owners no longer offered the inducement to extra 
exertion, the miners fell back into their old habits 
and came just as much short of their efficiency out- 
put as before. Had they, by wise expenditure of 
the higher wages, made themselves more efficient, 
the output would not have fallen back to its former 

* Schloss, The Methods of Indtistrial Remuneration^ 



90 The Bargain Theory of Wages. 



level, even supposing their old slovenly habit of not 
doing their best, without special inducement, had 
reasserted itself. Their best then would have been 
so much better. A more "plentiful subsistence" 
will no doubt increase the output, but it is not the 
only nor an immediate method of increasing it. 
" The wages of labor are the encouragement of in- 
dustry," and high wages operate directly to make a 
man come up to his standard of efficiency. If the high 
wages continue, and are wisely expended, indirectly 
they may also help to raise the standard ; but since 
the standard of comfort can be raised only gradually 
and slowly, and efficiency can only be slowly changed 
as the result of a more plentiful subsistence, the in- 
direct effect cannot be anything like so apparent, or 
so immediate, as Brentano asserts it to be. 

But, even under the assumption that an increase 
of the output can be only due to an increase of 
efficiency, the comparative statistics on which so 
much reliance is placed to prove that higher wages 
increase efficiency, do not bear out the conclusion. 
What should be proved is that, for every rise in 
wages, there is a corresponding increase in the out- 
put : what is proved is that every rise of wages is 
accompanied by an increased output. We can best 
make clear the hiatus in the proof by taking the 
comparative tables and expressing them as variations 
from a common index number. Take, for instance, 
the tables quoted by Brentano comparing wages and 
output in the textile industries at different periods 
and in different countries. 



Variations of Output and Wages. 91 



COMPARISON OF WAGES AND OUTPUT OF COTTON 
SPINNERS, ENGLAND.* 

„„„,^ AVERAGE PRODUCT AVERAGE 

PERIOD. 

PER WORKER. WAGES. 

1844-46 100 100 

1859-61 133 113 

1880-82 200 154 

COMPARISON OF WAGES AND OUTPUT OF COTTON 
WEAVERS, ENGLAND.* 

AVERAGE AVERAGE 

PRODUCT. WAGES. 

1844-46 100 100 

1859-61 192 125 

1880-81 243 159 

INTERNATIONAL COMPARISON OF WAGES AND OUT- 
PUT IN WEAVING.* 



COUNTRY. OUTPUT. 



WEEKLY 
WAGES, 

Germany lOO lOO 

England 153-6 139-5 

INTERNATIONAL COMPARISON OF WAGES AND OUT- 
PUT IN COAL MINING, f 

COUNTRY. OUTPUT. "^.T""^^ 

WAGES. 

United States, 1880 100 100 

Pennsylvania, 1880 148 103 

North Staffordshire, 1884 84 77 

Saarbriick Collieries 68 69 

Dortmund Collieries 74 68 

The general arguments in favor of shorter hours 
are open to similar objections. There is the same 
hiatus in the proof that shorter hours mean larger 

*Brentano, op. cit., pp. 62, 68. 

I Schoenhof, Economy of High Wages, p. 209. 



g2 The Bargain Theory of Wages. 



production. We are concerned only with that part 
of the agitation for a shorter working day which 
claims that wages need not be reduced correspond- 
ingly. If the working classes will submit to a re- 
duction of wages corresponding to the reduction of 
hours the problem becomes entirely different and has 
nothing to do with the theory that a higher standard 
of living, whether made possible by higher wages or 
by greater leisure, is the cause of greater efficiency. 
The figures do not bear out the contention that be- 
cause greater leisure means greater efficiency an em- 
ployer may safely continue to pay the same wages 
per week after he has reduced the hours of labor. 
In the long run this may be the result, but there 
will be immediate loss to the employer, which he 
may not be able to afford. The change is an ex- 
periment and an experiment has never a certain 
issue. The argument demands a closer connection 
between mere physical strength and efficiency than 
actually exists. The difference between a working 
week of sixty and a week of fifty-eight does not give 
so much more time for rest and recreation, does 
not imply so greatly diminished a demand on the 
energy of the worker that we can look for him to 
make up from this source alone the wages of the 
two hours he has sacrificed. He may work harder 
in order to still earn his old weekly wages ; but that 
is not the meaning of the assertion that the shorter 
hours have made it possible for him, for the first 
time, to work harder. In the long run we may ad- 
mit that the contention may be borne out by the 



The Leap in the Dark. 93 



facts; but the theory impHes that it is borne out in 
the short run ; and in so doing it tries to prove too 
much. The reduction of hours where the working 
day has not previously been excessive, without a 
corresponding reduction of the daily or the weekly 
wages, is an industrial experiment which the issue 
may or may not justify. It may be that the em- 
ployer is as a rule over-cautious in making the experi- 
ment,* but it ought to be admitted that he is being 
asked to make an experiment. 

* This general argument against shortening the hours of labor 
which an individual employer may justifiably use is frequently sup- 
plemented by the declaration that where machinery is largely em- 
ployed the efficiency of the laborer has no effect on the product. This 
argument finds emphatic and enlightened expression in an article on 
Factory Legislation in the United States in Bulletin of the National 
Association of IFool A/anufacturers {Sepiemher, 1895). "A given 
amount of machinery, no matter how perfect, cannot be so speeded as 
to turn out a product in fifty-eight hours, equal to that of the same 
machinery running sixty hours just over the border line. ... It is, 
therefore, true that the difference of two hours a week between Massa- 
chusetts and Rhode Island, assuming that wages are the same in both 
States notwithstanding that difference, may be ample, in and of itself, 
to make the difference between running the mill at a profit and running 
it at a loss.f ... A steam engine will drive machinery at the 
same rate of speed the world over. A modern spindle will make 

t " As it is now, a Rhode Island mill of two thousand looms can produce twenty 
thousand yards per week, or a million yards per year, more of print cloth than one 
in Massachusetts, as the difference between fifty-eight and sixty hours per week " 
(Boston Co7nttiercial Bitlletiti). This, however, is little more than an unqualified 
reassertion of an old fallacy that machinery does away with skill and makes but 
slight demands of the energy of the operative. This was the argument of the early 
English factory-owners, and under influence of this idea the elder Sir Robert Peel 
declared that the factory system had become, instead of a blessing to a nation, its 
bitterest curse. The same line of argument would also dispose of the general ad- 
mission the writer in the Bulletin is inclined to make, that an eleveji hours' day is 
more productive than a thirteen or a fourteen hours" day. 



94 TJie Bargain Theory of Wages. 



This first version of the productivity theory, which 
asserts that the direction of the causal relation is 
from higher wages to increased production, resembles 
the more scientific statements of the subsistence 
theory in one important particular. Both theories 
recognize that it is necessary to provide some sort of 
justification and assurance that the industrial experi- 
ment of paying higher wages which they propose 
will not lead to a disastrous issue. In the one case, 
the higher wages which are in consequence of a 
higher standard of life are proved to be, in the long 
run, economical and therefore justifiable. Higher 
wages mean an increased demand for commodities, 
and the demand of the working classes is so great 
and so steady that more economical processes of 
production can be introduced and the total output, 
therefore, increased. In the second case, the higher 
wages lead directly to an increase in the efficiency 
of one of the agents of production, labor, not capital 

9000 revolutions per minute, whether located in Massachusetts or in 
the Piedmont region of the South. A loom adjusted to 150 picks 
per minute in the one section will be adjusted to the same speed in 
another. No appliance of Yankee ingenuity for reducing labor cost, 
saving materials, or expediting processes, fails of adoption everywhere 
as soon as its value is proven. 

" It follows that in a State where ten hours is the legal day, the 
production of a mill will not equal by ten per cent, the production of 
a similar mill engaged upon the same class of work in a State where 
eleven hours constitute a day's work, provided that the management 
is equally efficient. 

" This is as susceptible of proof as a problem in mathematics. It 
has, in fact, been repeatedly demonstrated in the experience of New 
England manufacturers " (pp. 264-266). 



Second Version of the Productivity Theory. 95 



in this instance, and consequently to a larger out- 
put. In both cases the advance of wages is arbi- 
trary, and in a sense accidental, but the advance 
sets forces at work which in the long run provide 
an ex post facto justification for the advance. In 
the long run, there is no doubt that an advance of 
wages will justify itself, economically, either in- 
directly as the first theory or directly as the second 
suggests: the trouble is that a failure of the coinci- 
dence of the short run and the long run may prevent 
the trial of the experiment altogether. 

The other version of the theory has more to com- 
mend it. It approaches the problem from the right 
end and does not need to postulate industrial ex- 
periments to prove its truth. It takes its stand on 
the indisputable fact that when more is produced 
the employer can afford to pay more, absolutely, if 
not relatively, for labor; and asserts, or assumes, 
that competition will transfer to the laborer all that 
he has produced. This is the form of the produc- 
tivity theory which should commend itself to the 
employer, for it involves no addition of uncertainty 
or risk to business, and demands no leaps in the 
dark. Because of the possibility of waste of the 
raw material or of carelessness in the handling of 
delicate machinery, the advocates of this version are 
ready to admit that it is better to pay higher wages 
than to pay low, and give their consent to the doc- 
trine of the economy of high wages. But they reject 
the popular inference that the only way to increase 
production is to raise wages. Wages may, for the 



96 The Bargain Theory of Wages. 



time being, rise above the efficiency limit ; but, in 
the nature of things, such a rise must be temporary; 
and their contention is that, in the long run, the 
only real and effective measures for raising wages 
are those which seek to raise the standard of the 
laborer's efficiency. A rise due to any other cause 
is accidental : a rise of wages which follows from in- 
creased efficiency will, in all probability, be a per- 
manent rise because it has been granted on account 
of the competition of employers among themselves. 
Higher efficiency of labor gives the possibility of 
greater profits, and the prospect of higher profits 
means keener competition among the employers for 
workmen and the consequent transfer to the workers 
of the whole or the greater part of the extra profits. 
Competition, however, is not so active in the inter- 
ests of the workers as this version assumes, because, 
in the first place, the competition of the masters 
with each other for labor is offset by the competi- 
tion of laborers with each other for employment, 
and, in the second place, the competition of the 
masters is rapidly being replaced by combination 
and joint action. 

Care is not always taken to distinguish whether it 
is the increment of the output due to the increased 
efficiency of labor, or more or less than this amount, 
that is transferred to labor by competition ; and fre- 
quently confusion has arisen on this account. There 
are obviously other means of increasing the output 
than raising the efficiency of labor, and the ques- 
tion which this version seems, ex Jiypothesi, to de- 



Increased Output and Increased Wages. 97 



cide in the negative is whether labor obtains any 
share of the increase in the product which has arisen 
from any other cause. To admit that labor does, 
or can, receive a share of what it did not help to 
create is to abandon, or at least to modify seriously, 
the productivity theory and to substitute for a law 
of wages the merely vague and general statement 
that out of a larger product larger wages can be 
paid. If labor permanently receives either more or 
less than the amount fixed by its efificiency, we 
must altogether abandon the notion that labor re- 
ceives a determinate share, as by right, or adopt, in 
its place, the make-shift explanation that labor's 
share of the product is residual. 

A close examination of the facts seems to indicate 
that the one alternative or the other must be ac- 
cepted. The great increase of the product, which 
comparative statistics show, has not been due, in any 
large degree, to an improvement in ef^ciency. 
There has been during the last half-century a steady 
increase in the average amount of capital necessary 
to set a laborer at work and, at the same time, in 
the amount of capital necessary to produce a product 
of a given value ; or, to put the same fact more con- 
cretely, an increased application of machinery in 
production. The consequence is, as we might ex- 
pect, that although the product of industry has in- 
creased, the proportion of the product going to 
labor has diminished. Absolute wages may have 
increased, but relative wages have diminished. It 
is what we might expect, because the amount of the 



98 The Bargam Theory of Wages 



capital invested has increased more rapidly than the 
product. If we take the wages paid in, the amount 
of capital invested in, and the total product of, the 
mechanical and manufacturing industries in the 
United States, in i860, as each equivalent to 100, 
we find that in 1890 the capital invested would be 
represented by 546 and the product by 397 and the 
wages by 168. 

COMPARISON OF INDUSTRY IN i860 AND 1890 IN U. S. 

CAPITAL. PRODUCT. WAGES. 

i860 100 100 100 

1890 546 397 168 

We find similar results in the development of in- 
dustry in Canada, though we cannot carry the com- 
parison so far back. 

COMPARISON OF INDUSTRY 1881 AND 1891 IN CANADA. 

CAPITAL. PRODUCT. WAGES. 

1881 100 100 100 

189I 215 153 117 

The following tables bring out the same results in 
another way. They compare the amounts of capital 
employed to produce a product valued at $100, and 
the percentage of the net product, i. e., of the 
product minus the raw material, that goes to labor. 



UNITED STATES. 

CAPITAL PER $100 
OF PRODUCT. 



PERCENTAGE OF 

PRODUCT GOING 

TO LABOR. 



1850 $52.32 51 

1890 69.62 45 



Increased Output and Increased Wages. 99 



CANADA.* 



CAPITAL PER |lOO 
OF PRODUCT. 



PERCENTAGE OF 

PRODUCT GOING 

TO LABOR. 

1881 $53-07 45-7 

1891 74-36 45-7 



The results support the conclusion we have already 
drawn from the comparative tables, given on p. 91, 
that there is no exact parallelism between the ad- 
vance of wages and the increase of the product. The 
comparison shows also, however, that, in spite of the 
increased proportion of capital employed, the rela- 
tive share of the product going to capital has not in- 
creased, and the relative share going to labor has not 
diminished correspondingly. Labor has been able to 
make good a claim to a large part of this increased 
product. The capital necessary to produce a value 
of $100 has increased thirty-three per cent, in the 
industry of the United States, but the share going to 
labor has been diminished by a little more than 
eleven per cent. Thus the second version of the pro- 
ductivity theory is inadequate. The laborer's contri- 
bution to every $100 worth of product has obviously 

* The figures for Canada, which are taken from The Statistical 
Year Book of Canada, issued by the Dominion statistician, are open 
to the suspicion of partisanship. The Liberal party in Canada has 
always declared that the sections of the census of 1891 dealing with 
industry are a partisan document, intended to prove that the National 
Policy has been a great success. Canada is admittedly not industrially 
as far developed as the United States, and it can hardly be the case 
that there has been a greater increase in Canada in ten years than in 
the United States in forty years in the amount of capital necessary to 
produce a product worth $100. The amount of capital employed to 
produce a product of a given value is a sure indication of the stage of 
industrial development. 



100 The Bargain Theory of Wages. 



fallen, and his share of the product has also fallen, 
but has not fallen correspondingly. It is true that 
the laborer's contribution to a given product does 
not fall in the same degree as the amount of capital 
is increased. The intelligence of the laborer is a con- 
dition of the use of machinery. The laborer's lack 
of skill and general intelligence is often the cause 
why newer and more elaborate machinery is not in- 
troduced ; and if more machinery has been intro- 
duced it must have been because the higher intelli- 
gence of the laborer has rendered it possible. The 
increased product, therefore, which has resulted 
from the greater use of machinery cannot all be 
attributed to the increase in the amount of capital 
employed. But the intehigence of the laborer has 
not improved to an extent sufficient to account for 
the fact that his share of the product has fallen by 
only eleven per cent.* The contention of Mr. Mal- 
loch's Labor and the Popular Welfare, " that labor 
is no more productive to-day than it was a century 
ago," is only an exaggeration of the important fact 
that the increased productivity of industry is not 
altogether due to the increased intelligence of the 
working classes. 

* We have no means of determining, even vi^ith approximate accu- 
racy, the amount of the increased contribution of the laborer made when 
machinery is employed. In one case we do know that all of the in- 
crease of the product, due entirely to labor, is not handed over to the 
laborer. This is the case of Profit Sharing. " Under the stimulus 
of Profit Sharing the workers must create the additional profits they 
are to receive " (Professor Nicholson, Contemporary Review, i8go, p. 
68) ; but they do not receive the whole of the additional profit they 
create. 



The Economy of High Wages. loi 



The cause of the fact that the relative share going 
to labor has not diminished proportionally with the 
increase in the use of capital cannot be simply that 
the total product has increased. The total product 
is not so large, even after all the increase of recent 
years, that any claimant, through satiety, will aban- 
don part of the share he could obtain. The real 
reason is that since an increased use of machinery is 
not possible without the active co-operation of labor, 
the position of the laborer has been improved. His 
best efforts are necessary for the employment of this 
increased capital and to call these forth the capitalist 
has been compelled to ofTer him as an inducement a 
larger share of the product than apparently he is 
entitled to. The position of the capitalist has been 
correspondingly weakened by this necessity. The 
productivity theory, in one version or the other, has 
attained general acceptance and has been embodied 
in a practical formula regarding the economy in high 
wages. This formula is made the basis of the en- 
lightened discussion of the tariff question in opposi- 
tion to those who, ignorantly, raise the cry of 
" pauper labor," and of the economic discussion of 
the shortening of the working day, in opposition to 
those mechanical ideas of labor which regard the 
laborer as a machine which must necessarily produce 
twice as much in sixteen hours as in eight. The 
economy of high wages is preached as a gospel of 
hope for the laborer with, possibly, not a very clear 
recognition of the consequence that, if the gospel is 
true, a shortening of the hours of labor is not a 



102 The Bargain Theory of Wages. 



lessening of labor and an increase of wages per unit 
of time may even mean a diminution of wages per 
unit of effort ; and there is both surprise and indig- 
nation that the doctrine should ever be, or have 
been, called in question. Yet it is a comparatively 
new gospel which has, within thirty years, arisen to 
supplant the depressing doctrine of the economy of 
low wages. We may practically date the new theory 
from the early fifties, when, to the immense aston- 
ishment of advocate and opponent alike, the Factory 
Acts did not ruin English industry, but inspired it 
with new life. The accepted doctrine, down to the 
middle of the century, was of the economy of low 
wages. Even those who, in deference to Adam 
Smith, had accepted, without full understanding, a 
more hopeful doctrine, rejected incontinently the 
practical inference that a shortening of the hours of 
labor might even increase productive capacity. 
McCuUoch, who had loyally followed Adam Smith 
in denying that high wages encourage dissipation 
and idleness, and Senior, who made the first antici- 
patory steps away from the Wages-Fund Theory 
to the Productivity Theory, were, at first at least, 
strenuous opponents to the Factory Acts. It was 
Senior whose " last hour " gave the rallying cry to 
the opponents of the measure, although he, like 
many of the other opponents of the Factory legis- 
lation, was converted by the unexpected effects of 
the Act on the textile industries. 

The doctrine of the economy of low wages was a 
natural, though perhaps not a necessary, inference 



The Economy of Low Wages. 103 



from the Mercantile theories of last century, as it is 
from protectionist theories of to-day. It is signifi- 
cant, at any rate, that the overthrow of Mercantilism 
was followed by the demonstration that the inference 
from it was not consistent with the actual experience. 
In 1845 the repeal of the Corn Laws marks the final 
overthrow of Mercantilism, and the Ten Hours Law 
of 1847 had such unexpected results in stimulating 
industry that it was no longer possible to hold the 
purely mechanical idea of labor. As the triumph of 
free trade was the end of a long process of change 
and conversion, so the practical demonstration by 
the factory act was all that was needed to complete 
that change of views which begins with Adam 
Smith's enthusiastic advocacy of the doctrine that 
cheap labor and low-priced labor are not necessarily 
synonymous. Senior and Lord Brassey, however, 
were the first to show, by means of extended illus- 
trations and statistics, the fallacy of the older view. 
They did not, it is true, advance the modern theory 
in its unqualified form. They suggested an indiffer- 
ence theory to the effect that it did not matter much 
to the employer whether he paid high wages to effi- 
cient men or low wages to inefficient men. " It may 
be supposed," says Senior, "that the price of labor 
is everywhere and at all times the same," * and Lord 
Brassey declares, in the introduction \.o Foreign Work 
and English Wages, that the cost of work as dis- 

* Senior, Political Economy, p. 151. See also ibid, for quotations 
from the evidence of McCuUoch before the Committee on Artisans 
S^nd Machinery, p. 144 et seq. 



104 The Bargaijt Theory of Wages. 



tinguished from the daily wage of the laborer is 
approximately the same in all countries. The evi- 
dence on which Senior and Lord Brassey rely for 
this doctrine of indifference is drawn mainly from 
manual labor and their theory remains practically 
true so far as manual labor is concerned. Some of 
the facts and figures given by Lord Brassey do in- 
deed support the more advanced doctrine of the 
economy of high wages ; but the increased efficiency 
which followed each extension of the Factory Acts 
is the real cause of the general acceptance of the 
modern doctrine. The Factory Acts had been ad- 
vocated as a moral reform and justified on the 
ground that welfare, not wealth, should be the great 
object of government. The economic justification 
of the Factory Acts probably surprised Lord 
Shaftesbury as much as it confounded Senior. The 
abundant economic justification of the principle of 
the Acts forms a turning point in wages theory. 
Since then the indifference theory has become the 
economy of high wages; and the doctrine has been 
extended to cover all industry, machine industry as 
well as manual labor in which machinery is not much 
used. The facts and the assumptions of the theory 
have been already discussed ; but it is necessary to 
mention one other consideration that is of great im- 
portance. The figures which are advanced in proof 
and illustration compare only labor costs ; and labor 
cost without machinery is a different thing from 
labor cost with machinery. We must include in the 
real labor cost of production in machine industry the 



Wag-e Cost and Labor Cost. 105 



cost of the labor saving machine, that is, the ex- 
penses of its working, and the contribution to the 
sinking fund to replace the machine. Machinery 
has to a large extent reduced the nominal labor cost, 
but statistics are lacking to show how far the real 
and complete labor cost has been reduced. If it 
takes more capital in the form of machinery to set 
each worker at work in one country than in another, 
there may be no ground for saying that the higher 
wages in the first are counterbalanced by the greater 
productivity of labor. The larger output cannot be 
a measure of the greater efificiency when the amount 
of capital required to produce $100 of product is in- 
creased. Brentano, however, regards the Report of 
the German Iron Inquiry Commission (1879) ^s halt- 
ing, because " the increased capacity of production 
is not stated to be the exclusive cause of the increase 
in the average output of the individual workman." * 
The advocates of the economy of high wages are 
not all ready to go so far as Brentano. He even de- 
clares that the policy of Lancashire cotton spinners 
and weavers in demanding factory legislation for 
Bombay is suicidal ; because the only reasonable hope 
Lancashire can have of overcoming her disability of 
distance, alike from the cotton-fields and from a large 
portion of her market, is in the economy of high 
wages and in the greater efficiency which has resulted 
in England from factory legislation. This is an ex- 
treme position which is not often taken. It is gener- 
ally recognized that in some countries cheaply paid 
* Brentano, Hours, Wages, and Production, p. 16, 



io6 The Bargain Theory of Wages. 



labor is really cheap labor. These countries are not, 
it is true, the industrially developed, and the excep- 
tion might be neglected were it not that the exception 
is claimed to exist within the United States. There 
has of late been a good deal of discussion regarding 
the removal of the textile industries to the South ; 
and the organs of the manufacturer allege that the 
movement is away from the trade-union and factory 
legislation sphere to regions where help is cheap, 
really cheap as well as nominally cheap. To the 
contention that the Southern help is less efificient, 
they reply that it is not correspondingly less efficient 
than the higher-paid Northern help. 

" The other argument by which this legislation is 
defended is . . . that the average factory labor in 
Massachusetts and New England is more intelligent than 
in other sections of the country, the South particularly, 
and can accomplish more and better results in shorter 
hours. As between reasonable and unreasonable hours 
there is validity to this argument ; but as between fifty- 
eight and sixty hours a week it has no validity whatever. 
What we have just said relative to the speed of machin- 
ery is a complete answer {^see above, p. 93). The state- 
ment about the relative intelligence and skill of New 
England operatives is not seriously put forth by persons 
familiar with the present status of factory labor in the 
East. The bulk of that labor is foreign-born ; its aver- 
age intelligence is not higher than the average intelli- 
gence of similar labor in other States, nor so high as 
that in many other sections of the country." * 

* Bulletin of the National Association of Wool Manufacturers, 
pp. 268, 269. 



The Economy of Lozv Wages. 107 



There is therefore more to be said for the indiffer- 
ence theory or even for the economy of low wages 
than is generally admitted. The economy of high 
wages must be relative to many conditions : to the 
existing standard of comfort and the possibility of 
raising it ; to the effect of a rise in the standard of 
life on efficiency ; to the existent skill and intelli- 
gence of the workers ; and to the extent to which 
machinery is employed. 

The extreme to which Brentano has carried the 
doctrine is all the more remarkable that he has him- 
self suggested the possibility of reconciling these 
diverse views, whether regarded as historically suc- 
cessive views, or as presently opposed opinions. 
He admits that the economy of low wages is true 
not only of the seventeenth- and eighteenth-century 
workers whom Child and Petty and other writers 
had before their minds when they wrote, and of 
workers in the East, but also of laborers in the back- 
ward country districts of Germany ; but for all 
countries and districts which have come under the 
influence of competition and progressive ideas the 
economy of high wages is the law. The reason for 
this distinction is the difference in the attitude of 
the men towards industry. The eighteenth-century 
workers lived and worked under the influence of cus- 
tom and tradition. This is true also of the worker 
in backward countries and districts. His stand- 
ard of life and his standard of efficiency are alike 
determined for him. To raise his wages would have 
no effect on his efficiency unless it were for the time 



lo8 The Bargain Theory of Wages. 



being to lower it. To attempt to raise the standard 
of his efficiency is to attempt the impossible. But 
the worker of the present day is, to a very large de- 
gree, influenced by the economic motive ; and the 
economy of high wages is the consequence. The 
change from an economy of low wages to an economy 
of high wages was brought about by the economic 
awakening of the worker. This awakening may be 
due either to migration, to new industrial conditions, 
or to a change of the conditions in which the worker 
lives. Brentano quotes Doctor Johnson with ap- 
proval: " Established custom is not easily broken 
till some great event shakes the whole system of 
things and life seems to recommence on new princi- 
ples." The influence of migration on labor we con- 
sider later, but the same result may be effected in 
the history of a people by industrial changes as are 
effected in the history of an individual by migration 
or emigration. The introduction of the factory sys- 
tem made this change, first in England, and then in 
America, and then on the continent of Europe. It 
created competition among the producers. The old 
system of autonomous production for a local market 
gave little motive for exertion. When, however, 
large amounts of capital were sunk in buildings and 
machinery, the employer, anxious for the largest 
profit, and hating to see his capital idle, drove his 
workmen, with the result of the hideous excesses 
which it was necessary to call in legislation to re- 
move and to prevent. When one avenue was closed, 
the employers sought another. They could not 



The Dynamic Principle. 109 



lengthen the working day, so they endeavored to 
increase the intensity of working and in their anxiety 
for profit offered inducements to labor to exert itself. 
Labor could be induced to do what legislation for- 
bade it should be compelled and driven to do. A 
powerful new motive came into existence. The 
laborer could be induced to exert himself by an ap- 
peal to his self-interest, and the economy of high 
wages became an industrial fact. 

Reference has already been made, in discussing 
the two earlier theories, to the attempts made, in 
various ways, to secure some necessary dynamic 
principle ; and throughout the whole treatment of 
problems of distribution there is an evident search 
for some determinant quantity by reference to which 
we may determine the other shares of the product. 
The distribution of the product of industry — the 
National Dividend — seems in practice so definite 
and, notwithstanding strikes and kindred social (and 
unsocial) phenomena, so deliberately certain that it 
seems almost a foregone conclusion that there should 
be some single principle discoverable, in virtue of 
which this precision exists. When, however, we 
set ourselves to judge between three or four actual 
claimants for the product, the problem becomes 
perplexing and, apparently, in principle, insoluble, 
unless we can apportion to one or other, or more 
than one, of the claimants a definite share as by 
necessity. We, therefore, naturally look for some 
given quantity or quantities which will enable us to 
solve the remainder of our problem. The mathe- 



I lo The Bargain Theory of Wages. 



matical method, however valuable it may be for 
illustration and exposition, is not quite applicable, 
because here we are dealing, not with rigid quanti- 
ties, but with human forces. Economists in their 
treatment of distribution have generally anticipated, 
or adopted, the spirit and the purpose of Mill's 
Logic and applied the methods of physical science 
to their investigation of the social problems of dis- 
tribution. The Method of Residues seems to lend 
itself most readily to the accomplishment of this 
particular purpose ; and various attempts have been 
made to demonstrate that some particular share in 
distribution is residual, i. e., that the product, de- 
duction being made of certain fixed payments, be- 
longs, by necessity and by right, to one or other of 
the claimants. Physical methods are more or less 
inadequate to deal with human facts and forces and 
the result of their use has generally been to give 
to some element an unnatural rigidity. We have 
need in economics, as well as in metaphysics, of the 
Kantian category of reciprocity. 

The best-known, and most generally accepted, 
application of the Method of Residues in economic 
science is found in the classical theory of rent. 
Rent is the surplus of the product remaining after 
the expenses of production, that is, the wages and 
the profits, have been deducted. Land on the 
margin of cultivation pays no rent because it yields 
no surplus, no residue after the expenses of produc- 
tion have been met. There is a strong tendency, at 
present, to extend the area of the conception of rent 



The Residual Method. Ill 



and apply the term not only to the residue of the 
total product, but also by analogy to any returns to 
labor and capital which exceed the normal return to 
such labor and capital. The validity of residual 
process, in the original case of rent, depends obvi- 
ously on the truth of the assumption that the re- 
turns to capital and labor are fixed quantities. If 
these are variable — and the extension of the concep- 
tion of economic rent or surplus seems to indicate that 
they are variable in some degree — the perplexities 
of the problem of distribution are resolved only in 
name, and the residual nature of Rent is purely 
formal. To Ricardo, it was an easy conclusion that 
Rent was a residual share. Notwithstanding his 
distinction between natural and market wages and 
his concession that market wages might remain con- 
stantly and for an indefinite period above the natural 
rate, when he turned to the consideration of the other 
shares of the product he seemed to think of natural 
wages alone, which were fixed at the amount " neces- 
sary to enable the laborers, one with another, to 
subsist and to perpetuate their race, without either 
increase or diminution." Profits, however, are not 
regarded as quite so definitely determined. The 
theory of profits and interest had not in Ricardo's 
hands assumed the neat concise form it received 
from later economists. Ricardo had failed con- 
sistently to state a distinction, which he sometimes 
recognized, between the gross amount of profits and 
profits per cent. ; and the result was a reckless use 
of the proposition that wages could rise only at the 



1 1 2 The Bargain Theory of Wages. 



expense of profits. Later writers developed more 
clearly the notion of a necessary rate of profits. A 
certain rate of profit was necessary to call out an 
effective desire to accumulate in the requisite degree. 
But we can hardly say that Ricardo put forward a 
natural rate of profits as he had put forward a natural 
rate of wages. Rather did he consider inconsistently 
profits as also being a residual share. Wages could 
rise only at the expense of profit. Consequently we 
do not look to Ricardo for the standard exposition 
of the Ricardian theory of rent. In his exposition, 
rent was a surplus remaining over after one deter- 
minate and one indeterminate share had been paid 
out of the product. 

The neat formula of Rent as equivalent to the 
•product minus the expenses of production — R = 
(P — E) — was not presented by economists till the 
rise of the class of simple investors, who required a 
fixed rate of interest as a reward for abstinence, to 
induce them to postpone immediate enjoyment to 
the necessary extent, had made it possible to regard 
profits, definitely and consistently, as a fixed share. 
The Ricardian doctrine of fixed wages had, in the 
meantime, been abandoned, but its place was taken 
by the Wages-Fund Theory, which made wages as 
definite and determinate as they were under Ri- 
cardo's theory. Profits were thus a determinate 
amount and wages were a determinate amount and 
the residual nature of rent was thus neatly estab- 
lished. While the Wages-Fund Theory was main- 
tained, this was the current theory of distribution. 



Re7it as Residual. 113 



It was based on the two assumptions that profits 
tended to a minimum (fixed at the rate necessary to 
call forth the requisite degree of abstinence) and the 
determination of the wages fund by the intention of 
the capital. The theory was not firmly established 
before its stability was threatened. Mill modified 
the assumption of the tendency of profits to an 
equality. His " instability of unequal profits " does 
not afford the same stable basis for the theory of 
rent ; but the residual character was maintained 
until the Wages-Fund Theory was abandoned, and 
is, indeed, still maintained. 

The residual nature of profits, which does not, to 
the ordinary business mind, seem to require demon- 
stration, has, except in Ricardo's half-hearted fash- 
ion, hardly been put forward ; but the residual 
character of the reward of labor is part of the current 
modern theory of distribution. Professor Walker, 
after demonstrating that wages are not paid out of 
a pre-accumulated fund, but out of the product, de- 
clares that wages, in a very real sense, are not paid 
out at all, but are what remains over after certain 
fixed charges, rents, profits, and interest, have been 
met. Rent is determined by the margin of cultiva- 
tion, the lands which yield no rent ; and profits and 
interest are similarly and analogously determined 
by the margin which just gives a return sufficient to 
cover expenditure. 

The development of a residual theory of wages 
was a natural outcome of the attitude of economists 
towards economic history. They persisted in seeing 



1 14 The Bargain Theory of Wages. 



in the past only a series of ready-made illustrations 
of the theories of the present ; and when such illus- 
trations were harder to find than usual, or not so 
clearly illustrative of the theory in hand as might be 
desired, they did not hesitate to invent a purely fic- 
titious economic history and treat it as sober fact. 
They always assumed that the principles which gov- 
ern men's conduct at our present stage of industrial 
development are but more complicated forms of the 
principles which governed the primitive man ; and 
regarded it as at once a necessity and a virtue to 
turn to the early instances to bring these principles 
into clear relief. The hired laborer who receives, at 
the hand of another, a derivative, not an original, 
share of the product is, from this point of view, re- 
garded as in the same position as the original auton- 
omous producer who was the final owner of all the 
fruits of his labor and exertion. Adam Smith, 
although he did not in terms commit himself to this 
view of history, apparently lends to it the sanction 
of his authority : 

*' The produce of labor constitutes the natural recom- 
pense or wages of labor. In that original state of things 
which precedes both the appropriation of land and the 
accumulation of stock the whole produce of the labor 
belongs to the laborer. He has neither landlord nor 
master to share with him." * 

Here we have the basis of the residual theory and 

* Wealth of Nations, p. 27. See Mr. Cannan's Production and 
Distribution, pp. 200, 201. 



Wao^cs as Residual. 1 1 5 



a reason for rejecting a theory of wages which finds 
the measure of wages in the intention of the em- 
ployer. What we have really to explain is not why 
the laborer receives wages, but why the whole of the 
product of industry does not belong to him. The 
explanation is that as industry develops, the laborer 
comes to require more and more the co-operation of 
agents of production which are not in his possession ; 
and for the help of these he is compelled to pay. 
The price he pays for their co-operation must be 
deducted from the resultant product before we have 
the actual, as distinguished from the natural, recom- 
pense or wages of labor. 

Adam Smith's suggestion that wages might be 
regarded as the residual share of the product was not 
developed by his immediate successors; but it has 
been taken up and amplified as the basis of the 
modern theory of wages. This revival of a neglected 
doctrine is partly due to the growth of democracy 
and the consequent tendency to exaggerate the in- 
dependence and supremacy of the working classes in 
the labor market ; but, mainly, to the recognition of 
the fact that it is necessary to give determining 
power to the principle of which the law of wages is 
the expression. The early theories endeavored to 
do so directly. The Subsistence Theory provides 
a minimum below which wages cannot fall, and the 
Wages-Fund Theory treats the supply of labor and 
the demand for labor as definite quantities fixed by 
extraneous forces, irrespective and independent of 
each other, Professor Walker approaches the prob- 



Ii6 The Bar gam Theory of Wages. 



lem in a more roundabout way. He was practically- 
debarred by his polemic against the methods of the 
Wages-Fund Theory from attempting a direct solu- 
tion ; and he, therefore, tried to show, not that the 
share of labor was determinate, but that the other 
shares taken from the given product were. Thus, 
by the method of residues, the end at which the 
earlier theories had aimed is reached. The share of 
labor is determined and the result can be set forth 
in a neat but unconvincing formula which has pro- 
voked Mr. Gunton's sarcastic definition of the small 
boy's catch, as all the fish in the sea minus those he 
didn't catch. The value of a residual theory de- 
pends on a demonstration of the strictness of the 
determination of the other shares ; and this demon- 
stration no one can imagine that Professor Walker 
has provided. In other chapters we find him a (de- 
veloped) Ricardian of the Ricardians determining 
rent as a residual share, and profits as a residual 
share, and interest as a residual share. So when 
we find that wages also are determined as a residual 
share we can hardly avoid the inference that we 
are travelling in a vicious circle, not of a very great 
diameter. 

The Productivity Theory is held by many writers 
who do not adopt it in its residual character. These 
writers are mainly concerned with the practical ap- 
plications of the theory, in the discussion of tariff 
reform, and of the reduction of the hours of labor; 
and for their purposes the residual nature of the 
share of the product which goes to labor is probably 



Wages as Residual. 1 1 7 



better left in the background. No useful purpose, 
at any rate, could be served by treating the share of 
labor as residual. 

Apart from the practical applications, it was almost 
inevitable that an effort should be made to show that 
wages was the residual share. The final test of a 
theory of wages is held to be the dynamic force of 
the determining principle, and directly, the produc- 
tivity theory does not provide such a principle. The 
total product of industry cannot, in any intelligible 
sense, provide a measure of wages because the whole 
cannot be a measure of the part. That out of a 
larger product larger wages can be paid and out of a 
smaller product lower wages is not even a statement 
of a formal truth and may be a statement that is 
untrue. In the language of formal logic, a defini- 
tion of wages must consist of a statement of a genus 
and a difference. Where the genus is indisputably 
established we still require the statement of the 
difference. The theory of wages ought to state 
the differentiating principle which separates the part 
from the whole of which it is a part. The Produc- 
tivity Theory, at the first, and in many expositions 
to the very last, is merely a statement of the genus, 
and omits all reference to the difference as some- 
thing of comparatively little importance. While 
the new theory was merely a polemic against the 
Wages-Fund Theory, which was essentially a theory 
of the source from which wages are paid, it was suf- 
ficient to prove that wages were paid from another 
source. But the wages fund was determinate and 



1 1 8 The Bargain Theory of Wages. 



predetermined, while the new source is also the 
source from which Rent and Profits and Interest 
are paid. The triumph of the new theory brought 
prominently forward the question of the measure of 
wages. The treatment of the subject at Professor 
Walker's hands indicates the progress towards the 
recognition of this necessity. The Wages Question 
contains no hint of the residual character of the share 
that goes to labor. Space and attention are devoted 
to the criticism of the Wages-Fund Theory. In his 
Political Economy, the Wages-Fund Theory, and the 
polemic against it, are relegated to what is practi- 
cally an appendix, while the residual nature of the 
laborer's share of the product is fully set forth. 

The method of residues was employed to accom- 
plish indirectly what other theories had professed to 
do directly ; but the final result, in both cases, is 
practically the same. The share of the profit which 
goes to labor cannot be shown either directly or in- 
directly to be a determined amount, and the de- 
structive criticism to which each successive attempt 
has been subjected leads us to the conclusion that 
the need for absolute determination in the theory of 
wages is illusory. The necessity seems to arise 
from the fact that the actual shares of the product 
are distinctly determinate; but it does not follow 
that these shares are predetermined by action of any 
one principle. Indeed, a review of the phenomena 
of distribution shows us that there is no definite law, 
in accordance with which just so much, and no 
more, is assigned to any one of the claimants. The 



The Contribution of Labor to Production. 1 19 



shares are mutually determined and determining, 
and the result of this process can be known only ex 
post facto. There is no inherent necessity that the 
share of labor should be what it is; and it is what 
it is in virtue not only of the strength of labor but 
also of the strength or weakness of the rival claim- 
ants. We must get rid altogether of the idea that 
there is an economic force which allots absolutely 
any share of the product, even the smallest, to any 
of the claimants. There is no absolute minimum 
and no absolute maximum for any share; and the 
amount at which the share is finally fixed is deter- 
mined by a combination of forces. 

There is something superficially attractive in the 
idea on which the Productivity Theory is ultimately 
based, that each factor that has been employed in 
production should obtain as a return what it has 
contributed; but the process of determining what 
each has contributed is neither so easy nor so con- 
clusive in its results as this suggestion makes it ap- 
pear. Before the problem of discovering the con- 
tribution made by each factor can even be approached 
we must settle what the nature of the contribution 
made by each factor is. Is it a physical contribution 
or an economic contribution on account of which the 
return is to be made ? The physical contribution of 
each factor is no doubt determinate, and might, by 
analysis, be determined ; but it is obvious that the 
physical contribution made to the product is neither 
explanation nor justification of the actual remunera- 
tion received, and cannot be treated as such unless 



\ 



I20 TJie Bargain Theory of Wages. 



we assume that the whole system of society is a 
monstrous iniquity. There are factors in the physi- 
cal process of production which are necessary and 
indispensable (and, as Mill reminds us, there are no 
degrees of indispensability) which yet receive abso- 
lutely no share, even the smallest, of the product. 
The contribution to the process of production made 
by what we call the free gifts of nature is as real and 
as distinct and determinable as the contribution 
made by labor or by capital, but no share of the 
product is allotted to them ; and indeed it seems 
ridiculous to speak of a share of the product in this 
connection. In the degree in. which any agent of 
production approximates to the character of a free 
gift of nature, however necessary it may be, and 
may continue to be, to production, does its share in 
the product decline. It may continue as important 
as before, and it is even possible, as it comes more 
to resemble a free gift of nature, that its physical 
contribution may increase ; but its reward will dimin- 
ish at least relatively. If the supply of labor should 
be increased enormously we might find that many 
operations, previously performed by machinery, 
could be more profitably performed by hand (the 
converse case is a matter of common industrial ex- 
perience). The physical contribution of labor to 
the product would thus be augmented ; but while 
the total reward of labor might be increased the 
marginal reward would certainly decrease. The 
accumulation of capital, again, might be so rapid 
and so enormous that the rate of interest might fall 



The Physical Contribution. I2I 



almost to zero ; but the application of capital in pro- 
duction would increase rather than diminish. The 
skill and general mental qualities necessary for suc- 
cessful management might, by the spread of educa- 
tion, become very common ; but management would 
be no less indispensable and might even be employed 
to a greater extent in production than it is at pres- 
ent; yet the wages of superintendence would fall 
off as they have done, according to Mrs. Sidney 
Webb, in the textile factories of Lancashire. 
Thus, even supposing it was an easier matter than 
it is to determine the physical contribution made by 
each agent to the product, we are evidently not very 
far advanced on our way to determine, according to 
this principle of justice (which makes all the present 
organization of society a monstrous injustice) what 
share of the product should be allotted to each 
agent. 

The product of industry, moreover, is not the re- 
sult of the several factors, but of the combination 
and co-operation of the factors. Outside of the 
combination, and apart from the co-operation, of 
the various factors, the product of industry would 
be very small. The factors working separately, and 
in isolation (and separately and in isolation some 
of them could not work at all), would only be able 
to turn out a product beggarly in comparison with 
the share of the product they actually receive from 
the results of co-operation. Capital is, at the best, 
only a passive instrument of production : without 
labor and opportunity it can produce nothing; and 



122 The Bargain Theory of Wages. 



the socialists clamor, in virtue of this principle of 
justice, that it should receive nothing. The earth 
might yield her increase without labor and without 
capital, but the amount would be very small and the 
quality would soon deteriorate. Labor, the pe- 
culiarly active agent in production, would indeed 
produce something; but the progress of industry 
has been due to an increasing co-operation of labor 
and capital, and other agents of production ; and 
the greater the co-operation the larger the product. 
We cannot, therefore, find the contribution of any 
given agent by comparing the amount of the product 
when it is present and the amount of the product 
when it is absent and calling the difference between 
them the contribution of the given factor. By this 
method we should obtain some rather astonishing 
results. If labor, in the absence of capital, could 
produce only one half, or one third, of what is pro- 
duced to-day when labor and capital co-operate, 
fifty per cent, or sixty-six per cent, would, on this 
method, be assignable to capital. But, on the other 
hand, if labor were absent capital could produce 
nothing whatsoever, and consequently one hundred 
per cent, of the present product belongs to labor. 
Then, if we were to reverse the process, and add to- 
gether the several shares assigned to the various 
factors, after this method of subtraction had been 
carried out, we might find, as we pleased, either that 
the product had been assigned many times over, or 
that the larger part of it had not been assigned at 
all. It is sufficiently obvious that we cannot deter- 



TJie Economic Contribution. 123 



mine the contribution of any factor to the product 
by this indirect method of subtraction.* 

The sum of the whole matter is that we ought not 
to transfer to distribution the ideas which are neces- 
sary in production. The mere fact that an agent is 
employed in the processes of production affords no 
reason why a part of the product should be assigned 
to it, as the case of the free gifts of nature is suffi- 
cient to prove. An analogy will make the point 
clear. Physical laws and physical conditions must 
be present before a man can be pushed over a preci- 
pice; but we have no blame for the law of gravita- 
tion, or for the geological forces which shaped the 
formations of the district. We do not hold them 
responsible, but reserve our blame for the human 
agent who may, to the sum total of physical causes 
and conditions, have made the smallest physical 
contribution. As in the moral distribution of re- 
sponsibility and blame so in the economic distribu- 
tion of the product. Mere physical contribution to 
the result is a matter of no importance whatever. 
In the distribution of the product no share at all 
will be assigned unless the factor is, so to speak, 
able to make a claim and able to make its claim 
good in some way or other. The claim must be 
supported by a threat, and the power to carry out 
the threat is the sole measure of the share which the 

* This method has been unhesitatingly employed, with results most 
irritating to the friends and champions of labor, by Mr. Malloch 
throughout his brilliant essay, Labor and the Popular Welfare, and 
the futility of the method is the underlying fallacy of the book. 



1 24 The Bargain Theory of Wages. 



other claimants will allow to pass into the possession 
of the first claimant. The threat which can be used 
with effect is to withdraw the agent from the co- 
operation, and if the agent were a unit the power to 
make the threat good would cause the transfer to 
that agent of the difference between the product 
with its co-operation and the product without its 
help. But no agent is a unit and, although the 
agent, as a whole, is indispensable, the whole may 
be so great that no particular unit of that agent can, 
with any hope, claim to be indispensable. If the 
agent is available in such quantity that there need be 
no shadow of fear that the supply of it will not be 
sufficient to meet the demand, or, in other words, 
if the supply of the agent is so great that the other 
agents need have no fear of being deprived of its co- 
operation, no attention will be paid to the claim. 
The free gifts of nature, precisely on this account, 
receive no share of the profit. When there is any 
means of limiting them, they are appropriated and 
their claims are enforced by the threat to withdraw 
the supply of that agent from co-operation with the 
other agents. 

There is no right inherent in any agent why its 
claims should be allowed : its claims are admitted 
by the rival claimants only because they are forced 
to admit them. Should they be able to make better 
terms for themselves, by encouraging, so to speak, 
some substitute for a particular agent of production, 
that encouragement will be given. In the main, it 
is true that the contribution rendered by the agent 



The Law of Substitution. 125 



can be rendered by that agent alone ; but between 
labor and capital there is some possibility of substi- 
tution. When the wages of labor are high there is 
a decided impetus, as, for instance, in the United 
States, given to the introduction of labor-saving 
machinery. It is cheaper to employ machinery 
than labor because the claim made on behalf of the 
capital embodied in it is lower than the claims made 
on behalf of the labor it tends to displace. The 
claims of labor will therefore be disregarded to the 
extent to which they are in excess of the claims of the 
capital which may replace it, and the value of labor 
will be determined, not by the claims which are 
made by and allowed to the marginal laborer, but 
by the claims which are made by and allowed to the 
marginal substitute for labor. This process of sub- 
stitution has not resulted in reducing the claims 
allowed to labor, though it has possibly checked 
their advance, because in the long run, machinery 
has not over the whole field of labor caused a dim- 
inution of the demand for labor. 

The claim which may be allowed to any agent of 
production may be large, not because it has excep- 
tional power to enforce its threat to " strike," but 
because the power which the other agents have to 
enforce their claims is relatively weaker. In the 
contest, or competition, for the product a larger 
share may go to capital because labor is disorganized 
and to labor because improved communication has 
made new land and natural resources available. 
When the margin of the profitable application of 



126 The Bargain Theory of Wages. 



any agent extends, all the agents or claimants will 
gain, but the agent whose conditions have changed 
will gain the least by the change. Its relative re- 
ward will decrease and its absolute reward will not 
increase in the same proportion as the absolute re- 
ward of the other agents; and the reason is that 
owing to the increase of the supply the power of 
making its threat good has been impaired. 

The definite shares of the product which are 
allotted to the various claimants are not determined 
by the inherent right of one, or other, of them to a 
precise amount, but by the comparative strength of 
the various claimants. The shares are, therefore, 
mutually determined and determining; and we may 
therefore give up the search after some definite 
principle, or principles, which, directly, or indirectly 
by the method of residues, would predetermine the 
share of any one of them ; for the position of any 
claimant may improve, or become worse, without 
any alteration in itself, merely by an alteration in 
the relative strength of another claimant. 




CHAPTER IV. 



THE BARGAIN THEORY OF WAGES. 



THE mistaken quest for a principle which, singly, 
shall have determining power has generally 
led to an extreme and one-sided statement of the 
principle. It has been stretched to explain all the 
phenomena of wages ; and it has been an easy task 
for the critics to show that it is not sufficient to 
cover the whole ground. Many facts have to be 
accommodated to the theory and others left com- 
pletely unexplained and unexplainable. As long as 
the critic confines himself to his criticism, his course 
is clear and his argument unanswerable; but when, 
in the triumph of his destructive criticism, he be- 
comes confident enough to state his own theory, the 
tables are turned, and the new, or revived, theory is 
easily shown to be open, if not to similar, yet to 
equally weighty objections. No theory seems strong 
enough to meet the objections which are raised 
against it ; because no theory is adequate for the 
explanation of all the facts. The reason for this 
universal breakdown is that the criticism is, in the 

127 



128 The Bargain Theory of Wages. 



main, merely destructive. A principle is shown to 
be inadequate to account for the determination of 
wages under certain circumstances and is, there- 
fore, promptly rejected in toto ; and a new theory is 
put forward to explain what the rejected theory 
had not explained. But the new theory is generally 
found to be inadequate to explain what the old had 
explained. 

The consequences of the doctrine of evolution 
have not yet, in spite of the adoption of its phrase- 
ology, been fully realized by economists, or we 
should have less of this purely destructive criticism 
and hasty and contradictory construction. No 
theory which has obtained the approval of a large 
number of investigators of industrial phenomena, 
and kept it for any length of time, can be totally 
devoid of foundation. It may not express the 
whole truth, but it must present some sort of expla- 
nation of large groups of facts, and no polemical 
fervor can justify the total rejection of a theory 
which presents some part of the truth of the indus- 
trial situation. This destructive criticism has been 
inspired by the notion that the principle must ex- 
plain all the facts or none at all ; but when we get 
rid of the idea of the, necessarily, absolute deter- 
mining power of a single principle, the way is open 
to us to recognize the measure of truth and expla- 
nation contained in each of the three principal 
theories that have been advanced, and to construct 
a theory which shall give due place to the element 
of truth which each has been shown to contain. 



TJie Defects of Wage Theories. 129 



The errors of the theories, considered in the first 
three chapters, have arisen from making a solution 
of a part of the problem do duty for the solution of 
the whole ; and the remedy consists not in indis- 
criminate criticism and rejection, but in giving each 
theory its proper place. The subsistence theory is, 
in the main, a theory of the supply price of labor — in 
its earlier and later forms a theory of the necessary 
supply price determined by the cost of production 
(variously interpreted) — in its usual modern form, 
almost, it might be said, a theory of market-supply 
price or, at any rate, of the variations of the market- 
supply price above the necessary supply price. It 
errs, on the one hand, as a cost of production theory 
is bound to err, in neglecting the question of a pos- 
sible demand price, and, on the other hand, in inter- 
preting the supply price of labor too narrowly. It 
assumes throughout that labor is a commodity with 
pretty much the same characteristics as other com- 
modities which are bought and sold ; and, therefore, 
except in the vaguer form of the principle as the 
standard of comfort, it is forced to neglect the fact 
that the supply price of labor is not determined ex- 
traneously, but is largely self-determined. The sup- 
ply price of labor is not determined, solely, by the 
amount of the necessaries, comforts, and luxuries 
which are necessary, from physiological causes or 
from custom and habit, to support the laborer. 
These, as we shall see later, form the principal ele- 
ment in the supply price, but they do not constitute 
the whole of it ; nor is any sufficient reason suggested 



130 The Bargain Theory of Wages. 



in the theory why they should form even part. The 
supply price of labor is not a price determined by 
forces over which the laborer has not full control : 
it is simply an estimate which the laborer forms of 
what he (not necessarily his work) is worth ; and 
many elements enter into it, besides food and cloth- 
ing and shelter and even recreation. The supply price 
is not a minimum below which wages cannot fall, 
or a maximum beyond which they cannot rise. It is 
true that wages cannot easily fall below the standard 
of subsistence, interpreted in the strictest and nar- 
rowest physiological sense, but, owing to the prog- 
ress of the working classes, this form of the theory 
has been abandoned. In any other sense, whether 
industrial or optimistic, the standard of subsistence 
cannot be regarded as an absolute minimum. The 
degradation of labor is a melancholy fact of too fre- 
quent occurrence in industrial history to permit us 
to accept the standard of subsistence as an insur- 
mountable barrier. A man can live on less, and he 
may be forced by the fluctuation of industry for the 
time being to accept less, than will secure for him 
that amount of the necessaries, comforts, and 
luxuries of life which he naturally thinks, or has 
come to think, as his due. The supply price of 
labor is simply an estimate by which the laborer is 
prepared to stand and for which he is, if need be, 
prepared to fight. But the greatest omission in the 
theory is the neglect of the question of the demand 
price of labor. If we could accept without qualifi- 
cation the cost of production theory of value, the 



Demand Price and Supply Price. 131 



omission would not be serious; for, according to 
this theory, fluctuations apart, all values are deter- 
mined by supply; but " cost of production " was 
shorn of much of its significance by Mill, and rele- 
gated to the background, where, unless when brought 
forward to be definitely repudiated, it has remained. 
If labor is a commodity, it has not only a supply 
price but a demand price ; and the modern theory of 
wages practically anticipated those theories of value 
which find that value is determined by utility, 
in considering only the question of the demand 
price. 

In the standard of subsistence theory, as well as 
in the productivity of labor theory, too much stress 
is laid on the alleged fact of concomitant variation. 
This concomitant variation of wages with the cost 
of living, on the one hand, and with the efificiency 
of labor on the other, we found to be neither so in- 
variable nor so close as was alleged ; and yet to be 
close enough, in both instances, to justify both the 
theories as approximate explanations of the facts. 
In the language of formal logic, it might be safe to 
conclude that the two principles were in effect not 
so much contrary as subcontrary propositions. At 
any rate, both of them are in a measure true if 
neither is pushed to an extreme. Unfortunately 
the exponents of both theories have pushed them to 
extremes and, in asserting the truth of their own 
principle, have imagined that they were proving the 
falsity of every other. But a theory of the supply 
price of labor need not be set in antagonism over 



132 The Bargain Theory of Wages. 



against a theory of a demand price. Both may be 
true and both are necessary for a complete state- 
ment. The productivity theory amounts to an un- 
quahfied assertion of the demand price of labor as 
the determinant of wages. It ignores, almost com- 
pletely, the supply of labor because, optimistically, 
it considers the question of a supply price irrelevant 
and unnecessary. The demand price is necessarily 
higher than the supply price ; and the motive which 
the employer has in paying wages, and the beneficent 
results for the laborer of the competition of master 
with master, render the consideration of a possible 
supply price unnecessary. The demand price is 
fixed by the estimate which the employer forms of 
the efificiency of labor, and, as the demand price is 
higher than any possible supply price, the latter is 
ignored, except in so far as the supply price of labor, 
or the most important element in the supply price, 
food and clothing and shelter, affect the efificiency 
of the laborer. It is undoubtedly true that in pay- 
ing wages the employer is influenced by his estimate 
of what the laborer is worth to him, and this estimate 
constitutes the demand price of labor. In the case 
of labor, as in the case of all other commodities, the 
demand price is generally higher than the supply 
price. This arises not, as in ordinary exchange, 
from the low marginal utility of that with which the 
seller parts, but from the necessities of the laborer. 
But, although the demand price is generally the 
higher, or, to be more accurate, although the demand 
estimate is generally higher than the supply esti- 



The Demand Price not Fixed. 133 



mate, it does not follow that the supply price is 
a negligible quantity. The demand price is not 
fixed and absolute. It certainly, even under the 
beneficent influence of the competition of master 
with master, cannot be regarded as a minimum. 
The motive for paying wages is the hope of a sur- 
plus; and the lower wages can be fixed compatible 
with efficiency the larger the surplus the employer 
may hope to realize ; and there is, therefore, a rea- 
son why the employer should seek to pay less than 
he thinks the labor is worth. The supply price, 
however, is a practical limit to his powers of re- 
ducing wages. To reduce wages down to the 
supply price and to attempt to lower them further, 
will destroy the laborer's hopefulness and irritate 
him into a wild sense of injustice. If the supply 
price is high the enlightened employer's efforts to 
reduce wages will soon be checked by the decline in 
the laborer's efficiency, which depends so much on 
mental and moral qualities : if the supply price be 
low, the actual price of labor may be low, not 
merely because the laborer is less efficient, which he 
probably is, but because the employer may hope to 
realize a larger surplus without killing the goose 
that lays the golden eggs for him. In either case, 
the supply price of labor is of importance because it 
is the employer's interest to pay as much less than 
the labor is worth to him as the laborer will, readily 
and without irritation, accept. 

The Wages-Fund Theory, in a measure, is a rec- 
onciliation of these two theories ; but the reconcili- 



1 34 The Bar gam Theory of Wages. 



ation is premature. It presents a theory of the 
demand and the supply of labor, but treats both de- 
mand and supply from an impersonal and quasi- 
objective standpoint. Demand and supply are fixed 
by what are, so far as the theory of wages is con- 
cerned, extraneous forces. Supply is not relative 
to price, but independent of price, and the causes of 
the determination of the supply are considered out- 
side the theory. The causes which determine the 
demand are not so cavalierly dismissed ; but the de- 
mand is regarded as a quantity and not as relative 
to a price. The fundamental error of the Wages- 
Fund Theory consists in treating both supply and 
demand as fixed quantities. The laborer must work, 
therefore the supply of labor is absolute. The em- 
ployer, out of his own intention, fixes the Wages 
Fund which must be expended, and, therefore, the 
law of wages is the proportion between demand and 
supply. But the laborer, though he must work, is 
not merely passive, and the employer, like other 
men, forms some estimate of the worth of what he 
purchases ; and, although we may speak of a propor- 
tion between fixed and rigid quantities, we cannot 
speak of the law of wages being the proportion be- 
tween the demand and supply of labor. Mill's 
emendation " equation " is better, but all analogies, 
even mathematical analogies, are misleading. The 
supply of labor cannot be considered apart from the 
fact that labor and the laborer are inseparable : the 
demand for labor arises from the motive which the 
employer has in paying wages, viz., the realization 



The Form of the Completed Theory. 135 



of a surplus product, and is not independent of his 
estimate of what the labor which he purchases is 
worth. Wages are the result of an equation, if we 
must use Mill's term, of the supply estimate and 
the demand estimate, and, if the equation is not 
established at first, the solution of the problem is 
reached, as it is reached in all other buying and 
selling, by bargaining. 

The Wages-Fund Theory is, in form at least, the 
most adequate attempt to resolve the wages ques- 
tion. It recognizes that there are two sides to the 
equation and devotes considerable attention to the 
force which establishes the equation. This force it 
calls competition. Thus it presents the form of a 
complete theory; and the object of the remainder 
of this chapter is to fit the material of the Subsis- 
tence Theory and of the Productivity Theory to the 
form of the Wages-Fund Theory. 

In the last chapter, we saw in what sense the 
statement that labor is a commodity is to be under- 
stood. Even in the most advanced industrial stages, 
the buying and selling of labor continues in many 
respects to exhibit the characteristics of primitive 
exchange. The difficulty of securing that double 
coincidence which is necessary for barter does not 
appear, because labor is in steady demand ; and the 
labor market, though not organized like the money 
market, is not in a state of chaos. It is not because 
labor is less mobile than other goods that it retains 
the characteristics of primitive exchange, but because 
two separate estimates of utility enter into the de- 



1 36 The Bargain Theory of Wages. 



termination of the ratio of exchange. In the case 
of direct and primitive exchange of goods for goods, 
each of the exchangers has his own estimate both of 
what he wishes to obtain and of what he parts with 
in order to obtain it. The primitive exchanger is 
supposed to compare the marginal utiHty of the two 
commodities which are to be exchanged, and the 
exchange takes place only when the bread or the 
water or the diamonds with which one parts has a 
lower marginal utility than the commodity which 
one gains. But with the organization of industry 
and the extended application of the principle of the 
division of labor, the estimate which the exchanger 
places on the commodity which he offers in exchange 
becomes of less importance. He has it in superfluity 
and, even when he could use in his own consump- 
tion the commodity he produces, its marginal utility 
must be almost as low as zero. The producer pro- 
duces only to exchange and, in the actual exchange, 
therefore, looks almost exclusively to the utilities 
of the articles which he seeks to obtain. He may 
withhold part of his output; but his object in so 
doing is to obtain a larger amount of the commodity 
he desires. His motive is never the affection he 
has for the fruits of his own labor or the direct utili- 
ties which the commodities can afford him. The 
seller's personal estimate has little influence in deter- 
mining whether the commodity is sold or not. His 
minimum price is determined solely by the cost 
of production — what determines the cost of pro- 
duction is not our problem — and his objection to 



Labor a Personal Commodity. 137 



parting with the commodity below cost does not lie 
in the fact that he can use it to better advantage — 
that, even in the having it, there is more utility 
than can be obtained by parting with it at a sacri- 
fice. This is true, notwithstanding the fact that, 
directly or indirectly, the commodity is the product 
of his own labor or sacrifice ; not only because under 
modern conditions this sacrifice of comfort is spread 
out over a large area owing to the division of labor, 
but also because it is a thing of the past. The 
manufacturer who sells the output of his mills does 
indeed sell the results of his exertions and his absti- 
nence; but, nevertheless, he will not withhold a 
single hank of yarn or a single yard of cloth from 
the market because he has exerted his powers of 
mind and body, or sacrificed his immediate comfort, 
in fashioning them. Rather will reflection on these 
past exertions make him the more willing to sell, that 
they may not go unrewarded. The exertion is over 
and past ; and, though future exertions may be 
limited because the reward for past exertions is con- 
sidered inadequate, yet past exertion has little to 
do with the determination of present price. But 
the less remote the exertion and the less the extent 
to which the division of labor is carried in produc- 
tion, the more will the seller's sense of the exertions 
he has put forth and the sacrifices he has undergone, 
affect his readiness to sell at any price. An artist, 
in so far as he is animated by the commercial motive, 
is more likely, other things being the same, to hold 
his picture for an adequate price than the weaver 



138 The Bargain Theory of Wages. 



his cloth. The artist has completed the whole 
■ operation and has in his hands at one time the com- 
pleted result of his exertions. The work that he 
has fashioned is more to him than the yarn is to the 
master spinner; though the painter, too, will part 
with the picture at what he considers an inade- 
quate price rather than have it left on his hands. 
The laborer, however, is still nearer to his labor 
which he sells than the artist is to his picture. He 
has but little interest in the product which he is 
engaged in making. He has already contracted 
himself out of all claim on it. What he parts with 
is really not the fruits of past exertion, but the right 
to use his labor. All the time that the exchange is 
being effected, he is continuously conscious of his 
personal interest in what he sells. Since all labor 
involves disutility, we can never speak of the laborer 
parting with that which has a low marginal utility 
to obtain that which has a high marginal utility. 
Directly the power to labor may be of little use to 
the laborer, but the disutility of labor remains great. 
Were the laborer able to take a purely objective view 
of what he sells, the price of labor might be deter- 
mined as the price of all other commodities is, almost 
entirely from the side of demand ; but the memory, 
or the anticipation, of the disutilities of exertion is 
too strong to permit him to take an impersonal 
view and, consequently, he will insist more strongly 
than either the manufacturer, or the artist, on ob- 
taining an equivalent for the inconveniences he has 
incurred or is likely to incur. All that a man hath 



Labor a Unique Commodity. 139 



will he give for his life, and the laborer's necessities 
may be so great that he estimates the disutilities of 
labor as nothing compared with the utilities he de- 
sires ; yet, however highly he estimates the utilities 
of the reward and however indifferent he may there- 
fore be to the disutilities of labor, he will not work 
unless the utilities are, at least, an equivalent in 
satisfaction to the disutilities incurred. 

Labor, on this account, remains a thing apart. It 
has inevitably, perhaps fortunately, but certainly 
inevitably, lagged behind in the process of the 
simplification of exchange, which has gone so far in 
the case of other commodities as practically to elimi- 
nate the seller's estimate from the bargain. From 
the buyer's point of view labor has not lagged much 
behind. In primitive exchange the decision to buy 
or to sell depends on whether the indirect utilities, 
what by the Austrian economists is called the sub- 
jective exchange value, exceed the direct utilities or 
not. Under modern industrial conditions, the 
direct utilities are of comparatively little importance 
compared with the indirect. The buyer of labor 
must postpone the consumption of some portion of 
that share of the real income of society which has 
fallen to him ; but since he buys labor, not for im- 
mediate gratification, but to produce and to make 
money, the utility which he sacrifices does not 
weigh much with him. He fixes his attention far 
more on the commodities he seeks to obtain by help 
of the labor he hires than on the utilities he hands 
over to the laborer in exchange ; although the direct 



140 The Bargain Theory of Wages. 



utilities are not without influence on the estimate 
he forms of what the labor is worth to him. 

The price of labor is determined somewhere be- 
tween two estimates placed upon it — the estimate 
of the employer and the estimate of the laborer. 
The estimate of the laborer is the resultant of two 
factors — one positive and one negative — the utility 
of the reward and the disutility of the labor ; and 
the estimate of the employer is on the whole de- 
pendent on the indirect utilities afforded by what he 
purchases, or rather by the discounted value of the 
product created by the laborer's exertions. Should 
the laborer place too high an estimate upon what 
he offers to sell, or the employer too low an estimate 
on what he wishes to buy, no exchange will be 
effected ; but, in general, the necessities of the 
laborer and the motives of the employer prevent 
any such difficulty from arising. The pressure of 
the laborer's necessities is such that the reward 
which the employer offers is generally sufficient to 
cover the disutility of labor. 

Between these two estimates the value of labor is 
determined by the forces by which all exchanges are 
effected. These two estimates are a maximum and 
a minimum. The buyer is neither anxious nor will- 
ing to offer as much as his estimate. On the con- 
trary, he naturally desires to obtain what he wishes 
as much as possible below his estimate of what it is 
worth to him. His motive in buying labor is to 
obtain the surplus of the price which the product 
realizes over the advances he has to make to obtain 



The Limits of Wages. 141 



it ; and the smaller the advances he has to make the 
greater the surplus which remains in his possession. 
His estimate of what labor is worth is a maximum 
beyond which he can, only with the greatest diffi- 
culty, be forced to go. The difficulty arises from 
the opposition which the other claimants to a share 
in the product will offer to any disturbance of the 
balance which has already been established. Should 
he be forced to offer more than he can, consistently 
with this balance of claims (including his own), he 
will have to face the necessity of establishing a new 
balance unless he is content to see his own share 
shrink without a protest. Up to his estimate the 
employer can freely offer, but the less he can force, 
or induce, the laborer to accept, the larger his own 
share. 

The laborer, on his side, does not regard his esti- 
mate as a maximum. On the contrary, even should 
he be successful in extracting from the employer the 
full measure of the employer's estimate, it does not 
follow that he is quite satisfied. He has expended 
energy which it requires food and clothing and 
shelter to replace: he has occupied a position of de- 
pendence and restraint, for the irksomeness of which 
he insists on such a compensation in satisfaction, or 
the means of satisfaction, as will make him feel his 
own master during his leisure hours: he has suffered 
from the monotony of work, in which he has little 
immediate, and no ultimate interest, and his nature 
demands variety and recreation ; but the equivalent 
in satisfaction which he feels he has a right to de- 



142 The Bargain Theory of Wages. 



mand for these disutilities does not, as a rule, meet 
all the wants in his scale. The laborer, except per- 
haps in the lowest grades of society, has a great 
variety of wants and will naturally seek to satisfy as 
many of them as possible. Since his single source 
of satisfaction is the wages he receives, he will there- 
fore endeavor to get as high a price for his labor as 
he can. Thus, though he enters the labor market 
with a definite estimate of what he is worth, his esti- 
mate is a minimum only. 

The value of labor will generally be determined 
neither at the one estimate nor at the other, but 
somewhere between the two estimates, in a kind of 
debatable ground, as it were. The practical wages 
problem is the delimitation of the frontiers of the 
respective territories of Capital and Labor. What 
the result is of the dispute for this territory depends 
on circumstances. Each strives to engross the 
whole of the disputed territory and probably neither 
could be wholly successful. The issue depends on 
the relative strength of the contestants — on the weak- 
ness of one as much as on the strength of the other; 
and the issue cannot therefore be determined before- 
hand. We have here a failure of the equation of 
exchange. We can say only that wages will be de- 
termined somewhere between the limits by the com- 
parative strength and knowledge of the bargainers. 
The limits are not absolutely fixed ; but, within the 
undisputed and permanent frontiers, each is com- 
paratively free from the danger of aggression, not 
perhaps on account of a recognition of his rights 



The Debatable Ground. 143 



within these limits but on account of the special 
fierceness of the resistance to aggression. The em- 
ployer \vill find great difficuhy in forcing the laborer 
to accept less than he thinks he is worth ; and the 
laborer will find social and economic forces of great 
strength arrayed against him should he attempt to 
exact more than his labor is really worth to his em- 
ployer. But the distribution of the margin between 
the two estimates can never be regarded as final. , 
A position may be occupied by labor in one year 
from which, in the next, it may be forced to retire; 
and the outposts of the employer may, at times, be 
thrown farther forward than they can be permanently 
maintained. Should the strength of one party be 
considerably greater than the strength of the other, 
from whatever cause, the larger part of the debat- 
able ground may pass into the hands of that party; 
and when the strength of the two parties is nearly 
equal, the debatable land will be nearly equally 
divided between them ; but no arrangement is final. 
It is probable that, owing to various causes, the 
limits claimed by, and allowed to, labor are being 
steadily pushed forward year by year; but the 
laborer is probably still far from absorbing the whole 
of the debatable ground because, as we shall see, 
and as we have seen, though the fact was otherwise 
expressed, the rise of the laborer's estimate renders, 
through the greater efficiency that generally follows 
higher wages, possible a rise of the employer's 
estimate. 

It is necessary to consider more fully the nature 



144 ^'^^^ Bargain Theory of Wages. 



of these two estimates between which, as limits, 
actual wages are determined and to discuss the fac- 
tors which strengthen or weaken the position of the 
laborer, or the employer, as a bargainer. Some of 
these elements and factors are of so great import- 
ance that the discussion of them must be deferred, 
and, in the remainder of this chapter, the less im- 
portant only are considered, though the place of the 
more important is indicated. 

The laborer's estimate must not be taken as merely 
the equivalent of his standard of subsistence, how- 
ever broadly this conception may be interpreted. 
The standard of subsistence is not even an adequate 
objective representation of the laborer's estimate of 
his labor, for this includes, both the utility of the 
reward and the disutility of the labor. The utilities 
afforded by the reward may, through the necessities 
of the laborer's position, be so intensified that the 
sum of them may the more quickly counterbalance 
the disutilities of labor. The laborer's estimate is 
simply his demand that in the reward he may find a 
sufficient recompense for the various discomforts 
and inconveniences he incurs in working, and in 
working at the bidding of another. If the disutili- 
ties of labor diminish, owing to shorter hours, or 
better sanitary conditions, for instance, the laborer 
might be ready to accept a lower reward because the 
necessary recompense need not be so great ; though 
this event is hardly likely to occur. He might also, 
come to estimate the utilities of the reward more 
highly owing to a general intensification of his wants, 



The Laborer s Estimate. I45 



or, owing to the greater cheapness of consumption 
goods, he may find the equation of utility and dis- 
utiHty in a smaller wage. The social and indus- 
trial tendency is, however, in the opposite direction. 
The equation is found in a higher wage; for the dis- 
utility of labor is probably increasing while, owing 
to greater cheapness, the marginal utilities of the 
commodities which make the reward are decreasing 
and a larger amount of them is, therefore, necessary 
to provide the recompense for the disutility in- 
curred. 

The standard of comfort represents one element 
only in the disutility of labor, though that element 
is, and is likely to remain, the most important ele- 
ment. It corresponds, in a certain measure, with the 
amount of energy expended in labor and, therefore, 
affords us an objective measure of the principal con- 
stituent of a somewhat shifting conception. It can- 
not be taken as equivalent to the laborer's estimate 
for it takes no account of the moral disutilities of 
labor. We must take into account the effect of 
work, and especially of work at the bidding of an- 
other, on the mind and feelings of the laborer. The 
feeling of dependence and the sense of the irksome- 
ness of restraint and control do, indeed, make de- 
mands on a man's energy, and this expenditure must 
be made up ; but the equivalent of the physical en- 
ergy expended would not be regarded as a sufficient 
pmniium affectionis. The laborer's estimate, un- 
doubtedly, includes this purely subjective element; 
and, in one sense, the laborer's estimate is individual 



14^ The Bargain Theory of Wages. 



and subjective. It is his own estimate of what he 
is worth in his own eyes, not necessarily of what he 
is worth to an employer. But his estimate is really 
no more individual and subjective than he is him- 
self.* His estimate is framed, as his opinions are 
framed, after the model of the opinions of others. 
If he lives among men who value themselves and 
their self-respect highly, his estimate will be high. 
He will not accept employment which brings social 
disapprobation except for an additional compensa- 
tion ; and there are some occupations in which he 
will engage only under compulsion, and to which, 
under no circumstances, will he allow his children to 
be apprenticed and trained. What he regards as a 
degrading occupation he will leave severely to those 
whose self-respect is less. Consequently, it is not 
in the most disgusting occupations that the highest 
wages are paid ; b.ut a butcher's assistant will receive 
more than a grocer's. His estimate is framed, as we 
said, on the model of the estimate which others have 
formed, and, more particularly, on the estimate 
which the employer has formed. If he is worth so 
much to his employer, his self-respect will not allow 
him to estimate himself at less. In his employer's 
estimate, in so far as he knows, or thinks he knows, 
what that is, he has an assurance of his merits which 
his own conception alone could not give; and he 
may accept the employer's estimate so implicitly 

*Cp. Spmoza Ethica, part iii., prop. 57 et Schol, Qtdlibet unius- 
cuiusque individui affecius ab affectu alterius tantmn discrepat quan- 
tum essentia unius ab essentia alterius differt. 



The Laborer s Estimate. 147 



that it never occurs to him that his subjective esti- 
mate is an adopted one. 

Strictly speaking, this estimate is not represented 
by an amount of commodities but by that amount 
of commodities which will afford an equation of 
utility and disutility ; and the equation may be dis- 
turbed either by intensifying or by reducing the 
laborer's wants and necessities ; or by increasing or 
by decreasing the disutility of labor. Although, 
therefore, the laborer's estimate cannot be regarded 
as an absolute minimum, at any given time, or ex- 
cept in a purely formal sense, it has a determining 
power. The standard of subsistence, however in- 
terpreted, is simply an amount of commodities and 
there is no reason why the amount of commodities 
a man has been in the habit of consuming should 
determine his wages unless it be that the standard 
of subsistence is simply a rough and ready (but in- 
complete, though objective) measure of the disutility 
of labor. In this sense, the standard is a determi- 
nant because the disutility of labor must be coun- 
terbalanced, and more than counterbalanced, by 
the utilities which the reward affords. It is not a 
final determinant, however, even of the minimum 
wage because circumstances may alter and a new 
equation be necessary. An established equation, 
however, is not readily altered, and throughout all 
changes certain elements remain fairly permanent. 
The expenditure of physical energy is nearly con- 
stant, and the standard of comfort is that amount 
of utilities normally necessary to meet this constant 



148 The Bargain Theory of Wages. 



element in the disutility of labor. The standard of 
comfort is, therefore, the most important element 
in the laborer's estimate and gives to that estimate 
much of the resisting power which it has. The 
laborer's estimate is not, except in form, a minimum 
below which wages cannot fall, but it has great 
power of enforcing itself. If the equation between 
utility and disutility is not established, the laborer's 
sense of fair play is wounded and his work will suffer. 
His efificiency depends almost as much on his willing- 
ness as on his physical strength and dexterity, and 
the employer who tries to reduce wages in his 
anxiety to increase his surplus of the product may 
easily defeat his own ends. The strength of the 
laborer's position depends greatly on this necessary 
weakness of the employer for, though theoretically 
the employer has the laborer at his mercy owing to 
the necessities of living, practically he dare not push 
his advantage. 

The laborer's estimate is, as we said, an equation 
of two factors, the disutility of labor and the utility 
of the reward, both of which are subject to inde- 
pendent variations — though the latter more so than 
the former. 

The disutility of labor is, on the whole, increasing. 
Many of the disagreeable features of modern indus- 
try are preventable and are likely, by an extended 
application of the principles of the factory acts, to 
be prevented. It is significant that the worst abuses 
of modern industry, those which most surely destroy 
the health and the efficiency of the worker, are most 



The Disutility of Labor. 149 



prevalent in those industries which have lagged be- 
hind in the industrial development. The modern 
parallel to the iniquities of the early factory system 
is found not in the factory industries but in home 
industries; and this fact is so notorious that the 
more advanced of labor advocates propose practi- 
cally that home industry should be suppressed by 
law. The improvement of sanitary conditions and 
the shortening of the hours of labor effected by the 
factory acts have probably diminished the disutilities 
by a greater amount than they have been increased by 
the speeding of machinery and the intensification of 
work which have accompanied these ameliorations of 
the conditions of labor; and have perhaps rendered 
the speeding economically possible.* It is certainly 
an open question whether the expenditure of energy 
demanded from the labor in industry is increasing 
or decreasing ; for over against the optimism of those 
Utopists who, looking forward, see labor, by means 
of short hours and varied occupations, becoming 
pleasant and involving no disutility, but perhaps 
even a positive utility as affording an exercise for 
our powers, we must place the pessimism of J. S. 
Mill, who was inclined to doubt whether machinery 
had lightened human labor. 

This uncertainty exists only in reference to the 
positive disutilities of labor, if the paradoxical 
phrase may be permitted ; for there can be no 
doubt that the negative disutilities are increasing. 
These arise out of the dependence of the hired 
* Nicholson, Effects of Machinery on Wages, p. 48. 



1 §0 The Bargain Theory of Wages. 



laborer on his employer and the widespread feeling 
that in working at the bidding of another something 
of the full stature of manhood is lost. This feeling 
is a wages factor of increasing importance. The 
socialists have all along denounced vehemently what 
they call wage slavery ; and the ardor of the apostles 
of " pure," or producer's co-operation,* is inspired 
by the same idea. The idea that there is something 
rather degrading in being a wage earner has been 
fostered by the more zealous advocates of profit 
sharing, like Mr. Sedley Taylor, who speaks of the 
" moral gain to the workman in passing from the 
position of a mere wage earner to that of an associate 
in profits. ' ' f Whatever the attitude of the working 
classes towards these schemes, there can be no doubt 
that the negative disutilities of labor are of great 
importance in the wages question, and that with the 
spread of education, in the narrower and in the wider 
sense, and the growth of the political power of the 
working classes, they will become of more and more 
importance. The greater the self-respect of the 
laborer the greater will be his estimate of the dis- 
utility of labor, and the higher will the lower limit 
of wages stand. 

The other factor in the equation which gives the 
lower limit is the utilities afforded by the reward of 

* The ideal of Producer's Co-operation is "that the worker shall 
be elevated to the position of partner and profit sharer instead of 
being the hired machine of the capitalist and consumer." — Mr. Gray, 
Secretary of the Co-operation Union, quoted by Schloss, Industrial 
Remuneration, p. 202. 

■j- Report of Industrial Retuuneraiioft Conference, p. 256. 



The Utility of the Reivard. 151 



labor. A given amount of satisfaction may be 
obtained from the satisfaction of a few wants of 
great intensity or from a larger number of less in- 
tensity. It is possible, therefore, that an intensifi- 
cation of the elementary physical and human wants 
may induce the individual to find the equation of 
utility and disutility in a smaller amount of goods. 
Such an intensification of the elementary wants is 
of frequent occurrence, and whenever it does occur 
the laborer will put forth more effort to obtain the 
satisfaction than he puts forth at other times. The 
skilled artisan who is compelled to take relief work 
provided for the unemployed does not value himself 
the less but the reward the more; and the widowed 
mother will slave for a pittance to keep her children 
from starving. In comparison with their necessities 
they seem to place no value upon their work. On 
the other hand, the farther a man is from the danger 
of starvation, the less will be the marginal utility of 
the reward, and the sooner will he find that the dis- 
utility of working exceeds the utility of the reward, 
and the higher, therefore, the wages which must be 
offered to induce him to work. Moreover unto him 
that hath shall be given ; and the development of 
the purely human wants will increase the negative 
disutilities of labor, making dependence more irk- 
some and the sacrifice of leisure more ungrateful. 

The individual laborer is not, necessarily, de- 
pendent on his individual estimate. The lower 
limit which he sets, or would set, for himself is 
often superseded by an artificial lower limit set by 



152 The Bargain Theory of Wages. 



the industrial condition of the community in which 
he lives. In new countries, agriculture and the ex- 
tractive industries set the standard of wages, and the 
wages in these occupations form a minimum below 
which the wages in other industries cannot fall. 
This was one of the first laws of wages to be enunci- 
ated, and subsequent observation has corroborated 
Benjamin Franklin's statement (though not his in- 
ference) that " no man who can have a piece of land 
of his own, sufficient by his labor to subsist his 
family in plenty, is poor enough to be a manufacturer 
and work for a master."* His inference that 
" while there is land enough in America for our 
people, there can never be manufactures to any 
amount or value," has been hotly contested by the 
protectionists and was, in effect, condemned by 
Adam Smith. f The competition of rival nations 
in foreign trade has a similar tendency to create 
such an artificial lower limit in all countries, but the 
tendency is not so strong in this case because of 
the greater immobility of labor. In a new country 
every man thinks he knows enough to be a farmer; 
and the readiness of access to the land improves the 
laborer's standing not merely by reducing the sup- 
ply of hired laborers but also by removing some of 
the disabilities which might make the laborer, owing 
to the intensity of his elementary wants, find the 
equation of utility and disutility in a smaller quan- 
tity of commodities. While a man " can have a 

* Benjamin Franklin, Works, vol. iii., p. 108, 
I Wealth of Nations, bk. 4, chap, i, 



An A rtificial Lozver L im it. 153 



piece of land of his own," the elementary wants are 
not likely to be much in evidence; and the freedom 
and independence of the farmer render the de- 
pendence of the hired laborer more odious and 
unwelcome. As the country fills up, the laborer 
has to depend more on himself and on his own 
estimate. This does not mean, as Franklin sug- 
gests, that wages must fall as the nation becomes 
industrial. Indeed, the effect is generally in the op- 
posite direction because the development of manu- 
factures creates new wants; and the creation of 
new wants means that the laborer must receive 
a larger amount of commodities to establish the 
equation of utility and disutility. But whether the 
new natural limit is higher or lower than the old 
artificial limit, the laborer has now to depend upon 
himself alone. 

The upper limit of wages is the employer's esti- 
mate of what the laborer is worth to him ; and, since 
the payment of wages is not an exercise of philan- 
thropy and the employer is driven thereto by no 
physical necessity, but impelled by a purely eco- 
nomic motive, it is likely to be both more definite 
and more absolute than the laborer's estimate. It 
is more definite, because the employer is less liable 
to be governed by the peculiarities of his personal 
feelings and more ready to accept the guidance of 
his fellows who are at least as able to make an 
estimate as himself and are more animated by the 
same motive as he is. The laborer has to form 
his estimate by reference to the somewhat vague 



1 54 The Bargain Theory of Wages. 



and subjective ideas of utility and disutility while 
the employer can make use of the " calculation form 
of utility." It is true that he has to calculate in 
anticipation the price he can obtain for the fruits 
of the labor he purchases, and there is thus a pos- 
sibility of error in his calculations; but given the 
price, he has to do little more than calculate the 
efficiency of the individual laborer which he can 
readily measure. The upper limit is more absolute 
than the lower, because the employer has a stronger 
conviction that his estimate is just and accurate; 
for in this assurance, he will be able to offer a more 
effective resistance to any attempt to raise wages 
above this limit. 

As already explained, the upper limit is regarded 
by the employer as a maximum ; and if, as must be 
the case when labor is to be bought and sold, the 
buyer's estimate is higher than the seller's, the only 
reason why the employer should pay the maximum 
is that he can pay it ; and this he is not likely to pay 
until he is forced. But the fact that he can pay up 
to the limit is an element of weakness in his position 
as a bargainer; and should, at the same time, the 
position of the laborer be strong, wages may be 
forced nearly up to the maximum. There is no 
other sufficient reason why he should pay out the 
maximum wage. Competition of master with 
master is not keen enough to bring about this re- 
sult; and, besides, the effect of competition is set 
aside by the tacit or avowed combination of masters 
to pay as low wages as is compatible with efficiency, 



The Employer s Estimate. 155 



and by the fact that the development of the capi- 
tahst regime has created a surplus of irregularly- 
employed labor on which much of the force of the 
competition between masters for labor is dissipated. 
In fact, apart from the power which the laborers 
have of enforcing their demands, there is no reason 
to suppose that the employer will willingly pay as 
much as he can. Rather does he endeavor to pay 
as little as he may; and he respects the laborer's 
estimate only because of the effect which an out- 
raged sense of justice has on efficiency. 

However powerful the laborer is, we may practi- 
cally regard this upper limit as a final and unsur- 
mountable obstacle to the rise of wages. The 
employer can pay more to labor only by paying less 
to the other claimants for a share of the product and 
this would involve a readjustment: which is a task 
he is not likely to seek to undertake. He may be 
forced by necessity, or by the pressure of public 
opinion, to undertake it ; but, since one of these 
claims is his own, and all are made by men of his 
own class and standing, it will require a very great 
pressure. Labor it is natural for him to regard as 
the agent which should be sacrificed for the in- 
tegrity of the others ; and it would be a reversal of 
all his class and business preconceptions to think of 
reducing the shares of the other claimants to increase 
the share which goes to labor. The wide acceptance 
of the doctrine of a living wage shows that there is 
a growing belief that the wages of labor should be 
regarded as a first charge on the product of industry. 



156 The Bargain Theory of Wages. 



and the meaning of this is that, in the opinion of 
many, the employer, if necessary, should face the 
difficulties of readjusting the claims. 

If this readjustment cannot be effected, the suc- 
cess of the laborer in raising wages above the em- 
ployer's estimate would result in a restriction of 
industry unless there were some way open to the 
employer to neutralize its effect. There is one ob- 
vious way in which he can render a demand ineffec- 
tual which he is not strong enough otherwise to 
resist. The law of substitution * is especially appli- 
cable as between capital and labor; and the strength 
of the laborer's demand may be turned aside by an 
increased use of fixed capital. Machinery, at least 
to a very large extent, can be made to do the same 
work as labor; and labor-saving machinery is most 
used where, as in America, wages are high. The 
immediate result of the substitution of capital for 
labor is to reduce the demand for labor, and, there- 
fore, to weaken the laborer's position; and it is the 
immediate result only which is of importance in this 
connection. The law of substitution thus operates 
frequently to render concession to the demands of 
labor unnecessary. When the law of substitution 
is not operative, and there are still many industries 
in which labor-saving machinery cannot be used in- 
stead of labor, a successful demand for wages higher 
than the employer's limit will restrict industry. 
For a general readjustment of the distributed shares 
will occur only when the demand for higher wages 

* Cf. Marshall, Friticiples of Economics, passim. 



The Law of Substitution. 157 



has been successful over a large area ; and success in 
those industries where the law of substitution is not 
operative is not enough to force a general readjust- 
ment. Accordingly, a demand which requires a 
readjustment will be neutralized in most industries 
by the law of substitution and in the others Avill result 
in a restriction either of profits or of employment, 
or ultimately of both. 

It may be suggested that where the law of substi- 
tution does not protect the employer, there is a cer- 
tain compensation for the higher wages which will 
prevent the restriction of industry. The working 
classes form the great majority of consumers, and 
their increased spending power may make it profit- 
able to introduce improved processes of production. 
But unfortunately for the employers who, debarred 
by the nature of their industry from using the law of 
substitution in their own defense, have been forced 
to pay higher wages than they consider they can 
afford, the increased demand for commodities will 
probably not affect the industry which they are 
engaged in before. It is in the highest skilled 
trades, mainly, where artistic workmanship is re- 
quired, that machinery cannot be introduced as a 
substitute for human labor; and the demand of the 
working classes for the product of these industries 
is small and is likely, in spite of any possible in- 
crease of wages, to remain small. The demand of 
the working classes is for commodities produced in 
those industries where the law of substitution is 
operative. Accordingly, the compensation to the 



158 The Bargain Theory of Wages. 



unfortunate employer who has been forced to pay 
higher wages than he can afford, is found only in 
that increased general prosperity which tends to 
follow from a permanent increase in the demand 
for the products of any industry or group of indus- 
tries. The compensation, therefore, if not highly 
problematic, is at least very indirect. 

We may conclude, then, that the employer's esti- 
mate is practically a fixed and constant maximum. 
The attempt to raise wages above this limit will 
rarely be successful and, in those industries where it 
may be immediately successful, rejoicings are prema- 
ture. The endeavor " o'erleaps itself " and restricts 
employment ; and, in a short time, the employer's 
estimate will be re-established more firmly than ever 
as the upper limit of wages. 

The employer's estimate of the value of labor is 
the resultant of two factors, the amount which the 
laborer can produce and the resources at the com- 
mand of the employer. The first of these factors 
is so obvious that the Productivity Theory was based 
on the neglect of the second. The Wages-Fund 
Theory undoubtedly went to an extreme in the im- 
portance it attached to this second factor, but it 
rightly emphasized the fact that the employer is 
limited by the actual resources at his command in 
the amount that he can offer for labor. By this 
we mean not by the resources of any casual individ- 
ual who may, rightly or wrongly, aspire to be an 
employer, but by the resources of the marginal 
employer: that is, ultimately by the amount of the 



Factors in the Employer s Estimate. 1 59 



present income which the community is willing to 
divert from present consumption to the buying of 
labor. The Wages-Fund, in the narrower sense of 
the resources immediately (including credit) at the 
command of the employer, even though it be, as is 
asserted, continuously replenished, is an important 
fact in determining the proper limit. The Wages- 
Fund is a " Zwischen-reservoir, " as Roscher has 
termed it ; and although the capacity of the reser- 
voir is no measure of the volume of the supply, the 
situation of, and the height of the water in, the reser- 
voir determine the height to which the water can 
rise. The employer is the distributor of wages and, 
although the amount of his resources can affect 
money wages only, the question of money wages is 
the most important part of the question of real wages. 
The resources at the disposal of the employer in- 
clude the credit he can command at the bank and 
elsewhere. The monetary and banking systems of 
the community are thus of immense importance to 
the working classes. The volume of business peri- 
odically increases; and, if the money of the country 
is inelastic and does not expand in volume when 
the volume of business expands, there is a great 
danger that the value of labor will periodically de- 
crease. When banking facilities are rare and the 
credit system defective or undeveloped various de- 
vices are adopted, generally in connection with 
the method of remuneration, to supply the lack. 
Wages are paid, not weekly or fortnightly, but 
monthly or quarterly, or they are paid wholly or in 



l6o The Bargain Theory of Wages. 



part in goods or in orders on a store controlled 
directly or indirectly by the employer, or in dwelling- 
houses or land provided by the employer; and the 
effect is, in every case, to provide a somewhat in- 
efficient substitute for credit and to enable the 
employer to do a larger business on his available 
capital. The motive, of course, is not any desire to 
raise the wages of the workmen ; but were it not 
that these devices have serious indirect consequences 
for the laborer, the practice, even from the laborer's 
point of view, would be laudable wherever the credit 
system is not developed. It is significant that in 
Canada at any rate these devices fall naturally into 
disuse without the necessity of legislation as the 
banking system expands, and that they are practised 
now only in back country districts or by employers 
whose credit at the bank is not good. Unfortu- 
nately, the practice is attended by so many evils 
which weaken the position of the laborer that their 
influence in raising wages is as nothing in compari- 
son with the influence of their indirect effects in 
lowering wages.* 

The upper limit of wages is fixed but only for the 
time being. It is not unchangeable and may rise 
and fall with changes in industrial circumstances. 
It may fall as well as rise, although the progress of 
the working classes during the last half century has 
made the idea of a lowering of the upper limit 
strange and unfamiliar. The employer's estimate 

* For a further discussion of this question see Chap. VIII. of this 
essay. 



Variations of the Employer s Estimate. i6i 



will rise, in general, from two causes, viz., increased 
efficiency and an improved credit system. The 
conditions of a rise of efficiency are obvious and 
have been in part already discussed in the earlier 
chapters. The most important, as well as the most 
obvious, are the spread of elementary and technical 
education and the influence of high wages in im- 
proving the industrial capabilities of the laborer. 
Equally important, though not quite so obvious, is 
the influence which the lower limit has on the upper 
limit. Generally speaking, the higher the lower 
limit the greater the efficiency of the laborer. The 
man whose self-respect is great is likely, other things 
being the same, to prove the better workman. But 
this is true only in general, because a man's self- 
respect is never so militant as when it is wounded, 
and the attempt to violate the laborer's self-respect 
will result in a lowering of efficiency. 

These limits are, in the main, determined inde- 
pendently of the influence of outside causes. The 
laborer determines the lower limit and the employer 
the upper limit, and public opinion and legislation, 
which have considerable influence in determining 
where between the limits actual wages shall be 
fixed, have no certain and regular influence on the 
limits themselves. The influence is felt mainly, 
where at first we should hardly expect, in maintain- 
ing the upper limit higher than it ought to be. 
This occurs more frequently in the case of the 
wages of management than in the wages of hired 
labor. The employer, influenced by the idea of 



1 62 The Bargain Theory of Wages. 



what ought to be a Hving wage for men of his own 
class and rank, frequently pays higher wages to his 
managers than their work is worth. At least this is 
the conclusion which follows from the remarkable 
fact to which Mrs, Sidney Webb has called atten- 
tion in her Co-operative Movement : * 

" By selecting officials and managers from a class 
without a conventional and extravagant standard of 
expenditure, they (/. e., the " Lancashire Limiteds ") 
have reduced the earnings of the brain worker to the 
level of his actual wants — to the personal expenditure 
needful for the full and effective use of his faculties. 
The preposterous salaries given by upper class share- 
holders to upper class officials — the ^,^2000 to ;!^5ooo a 
year have been replaced by modest incomes of ;3^2oo to 
_;^4oo and apparently without detriment to skill or 
integrity." 

Between these limits the value of labor is deter- 
mined by the comparative strength of the bargainers. 
If the laborer is too weak to enforce his claim the 
wages of labor will be nearer the lower limit : if the 
laborer is a strong bargainer, near the employer's 
estimate. In some cases where organization and 
combination have greatly strengthened the laborer's 
position, the margin of debatable territory will be 
almost absorbed by labor; and this is probably the 
case where a trade-union minimum wage is enforced. 
The object of trade-union policy would then be to 
force a general readjustment of the terms of dis- 
* Beatrice Potter, The Co-operative Movement, p. 132. 



The Bargaining Process. 163 



tribution — a much more difficult task than that, 
already accomplished, of forcing wages up to the 
employer's limit because there will now be opposed 
to forces of trade-unionism, not merely the objection 
of the employer to a curtailment of his profits, but 
also the resistance of the other participants in the 
product to any readjustment which means a dimi- 
nution of their shares. It is impossible to determine 
whether, or how frequently, labor has been able to 
absorb the margin ; for the employer's maximum is 
definitely known only to the employer; and his 
protestations (because they are the protestations of 
an interested person) cannot be accepted except at 
a liberal discount. The fluctuations in the actual 
rate of wages which are frequent though not violent 
seem to forbid us to assume that the margin has 
been absorbed permanently by either party. The 
strength of the laborer, through combination, is 
very great ; but his necessities, the influence of 
which he endeavors to neutralize by means of these 
combinations, are also very great ; and combination 
is being met by combination. 

The Wages-Fund Theory, which we saw presented 
the form of a reconciliation of the other two great 
theories, states explicitly that actual wages are de- 
termined solely by means of competition. From 
the standpoint of the fuller meaning which has been 
given to the limits of the Wages-Fund Theory, it 
is obvious that competition is not the only factor 
which enters into the determination of actual wages 
between the limits although undoubtedly it is one 



164 The Bargain Theory of Wages. 



of the most important. The competition of master 
with master for labor tends to raise wages towards 
the upper limit : the competition of laborer with 
laborer for work tends to force wages down to the 
lower limit ; and the supply and demand of labor is 
of decisive importance in the determination. But 
competition is not the only factor or, at the best, is 
only a general name for the working of several fac- 
tors the nature of which requires more explanation 
than is given in the use of one general term. The 
strength or weakness of the laborer's position is 
only in part determined by the number of competi- 
tors for work. We are not dealing with a mere 
commodity whose value may be completely deter- 
mined by the more or less. We must, in the case 
of labor, take into account the knowledge which the 
laborer has of the general conditions of supply and 
demand and the presence or absence of that char- 
acter and decision which would enable him to take 
advantage of his knowledge, of the strength of his 
own position and the weakness of his employer's. 

The strength of the laborer as a bargainer depends 
on his knowledge of the market. Other things be- 
ing equal, knowledge is power and here the laborer 
is weak. It is true that the improvement there has 
been in the laborer's position during the last half 
century has been, to a large extent, due to his 
greater knowledge of the conditions of the labor 
market. The differential advantage which the em- 
ployer has always had owing to his greater knowl- 
edge and his wider opportunities for obtaining 



Knozvledge is Power. 165 



information, has been greatly reduced by the spread 
of general education, by the dissemination of indus- 
trial news through the press, by the organization 
and federation of labor unions, and by the opening 
of industrial bureaus, State or municipal, for the 
gathering in and dissemination of information re- 
garding the condition of industry in different parts 
of the country. The differential advantage, how- 
ever, still continues in favor of the employer; for, 
although at the present day a labor bureau is re- 
garded as an indispensable part of the administrative 
machinery of every progressive State or province, 
yet, till now, the information these bureaus have 
collected and published has probably been of more 
service to the economist and the statistician than it 
has been to the working classes. Indirectly, no 
doubt, through legislation promoted in consequence 
of the evidence thus presented, the interests of the 
laborer have been served ; but he is still generally 
either too ignorant, or too apathetic, to make much 
direct use of the reports. 

The laborer's abihty to acquire information and 
his ability to use such information as he has ac- 
quired, have sometimes been restricted by methods 
of industrial remuneration. The truck system, 
which theoretically might have so many advantages 
for the wage earner, has invariably served to hamper 
his movements and to blind him to the knowledge 
of the actual condition of industry. The distinction 
between real Avages and money wages is easy to 
draw in theory, and almost impossible to draw in 



1 66 The Bargain Theory of Wages. 



practice; and the truck system, in all its modifica- 
tions, has served to make it even harder. Profit 
sharing, and other methods of deferred payment, 
whatever the motive which inspires them, have the 
same tendency to make it more difficult for the 
laborer to discover where his real interest lies. 

Knowledge is not power, unless there is both 
ability and disposition to make use of it ; and on 
this account the employer is again stronger than 
the laborer. The laborer is at a disadvantage be- 
cause his necessities do not allow him to make use 
of the knowledge he has. He cannot often, even 
if he always would, follow wherever his advantage 
calls. The immobility of the laborer may be re- 
garded as the crowning disability of labor. It is 
true that the employer is also handicapped by the 
fact that fixed and specialized capital is peculiarly 
immobile ; but his disadvantage is not so great nor 
is it so immediate. Because the laborer must live 
by his work, it is more often he who seeks the em- 
ployer than the employer who has to follow after 
the laborer. The immobility of specialized capital is 
not a very great disadvantage because the employer 
is the centre of attraction.* 

Every disability under which the laborer suffers 
weakens his position as a bargainer and tends to 
keep wages down near the lower limit. Apart from 
the special disadvantages they bring, they generally 
have the effect of weakening character. Strength 

* For the discussion of Mobility of Labor see the two following 
chapters. 



Factors in the Wages Bargain. 167 



as a bargainer corresponds, in some measure, with 
the strength of the economic character of the bar- 
gainer. He who knows his interest and is zealous 
to pursue it occupies a strong position. The effect 
of many of the minor disabiHties is to weaken those 
qualities which would enable the laborer to take ad- 
vantage of those conditions which are in his favor. 
The consciousness of the immediateness of his ne- 
cessities, however, prevents him from taking the 
necessary risks to turn these conditions to his ad- 
vantage and the fruit that might be his, had he 
the means of gathering, falls to his employer. 
Character and decision are qualities in which the 
employer, by his circumstances and his training, is 
strong, and consequently, in the contest of strength 
between the employer and the employed, the result 
would generally be much in the favor of the em- 
ployer were it not that the laborer, conscious of his 
weakness and deficiency has, in combination sought 
and found a substitute for character. 

Trade-unionism or collective bargaining is a 
method by which the laborer endeavors to remove 
or to minimize the disabilities, notably the immedi- 
ate pressure of his necessities which forbid him, in 
isolation, to stand out for his price. The competi- 
tion of master with master for labor is not so keen 
that it is not neutralized and more than neutral- 
ized by the competition of laborer with laborer for 
work ; and by combination the laborer tries to do 
away with the suicidal competition of laborers with 
each other. This is the first but not the only aim 



1 68 The Bargain Theory of Wages. 



of trade-unionism. The early passive policy, if we 
may so call it, results in the organization of labor; 
and this organized force is used to snatch advantage 
from any disorganization in the ranks of the em- 
ployers. So long as the employers are meeting with 
slight resistance the lack of harmony in their ranks 
is of small importance but this lack of harmony is 
the opportunity of organized labor. 

The phrase " substitute for character" does not 
necessarily imply a depreciation of trade-unionism. 
Trade-unionism is only one expression of the maxim 

union is strength " ; and we cannot condemn it as 
arising out of weakness without at the same time 
passing condemnation on the whole evolution of 
society. Trade-unionism, though it does act as a 
substitute for character, does not destroy character. 
On the contrary, it builds character up and trade- 
unionists are the most energetic and self-reliant, not 
the least energetic and least self-reliant, of the work- 
ing classes. The ability to combine is an evidence of 
comparative strength, not of comparative weakness. 

There are other external influences, such as legis- 
lation and the pressure of public opinion, operating 
on behalf of labor which may, without reservation, 
be spoken of as substitutes for character. Whatever 
their final effect on the character of the labor they 
do not spring from, or imply, the possession of those 
qualities which make for industrial success. On the 
contrary, these influences are generally exerted in 
behalf of those Avho, from one cause or another, are 
weak and lacking in character and decision, Such 



Substitutes for Character. 169 



influences are not to be condemned merely because 
they have not their origin in the strength of those 
on behalf of whom they are exercised. If the effect 
is to weaken or to prevent the development of char- 
acter they ought to be condemned and repudiated ; 
but we cannot decide a priori that every substitute 
for character has this effect. It is true from of old 
that the curse of the poor is their poverty, and the 
disabilities of labor are cumulative in their effect. 
Consequently, if the influence of legislation and the 
pressure of public opinion can be directed to the 
raising of this acquired curse, the result may be the 
development of character. Legislation, undoubt- 
edly, has had this effect. The position of the laborer 
as a bargainer has been improved not merely by 
Factory Acts and Employers' Liability Acts, but by 
every measure which, positively or negatively, aims 
at the amelioration of the condition of the people. 
Compulsory education, the encouragement of thrift, 
and measures of a like kind, strengthen the laborer's 
position, because they tend to remove the disadvan- 
tages under which he suffers, owing to his ignorance 
and to his necessities. Such measures probably 
promote rather than hinder the development of his 
character and thus, in a twofold manner, strengthen 
his position. Even though a measure may seem 
calculated to check the developments of character 
and self-reliance, it is not necessarily to be con- 
demned. The evils and abuses at which it is aimed 
may more completely destroy self-reliance; but the 
proposed remedy obviously requires reconsideration 



I/O The Bargain Theory of Wages. 



and amendment. It is a poor remedy which aims 
only at removing a symptom, instead of removing 
the cause of the malady. The abuses which can be 
removed by legislation arise out of, and are fostered 
and protected by weakness and want of character; 
and if these are perpetuated by legislation, in a short 
time new evils, as great and as objectionable, will 
have arisen to produce the same effect as the old 
abuses which have been suppressed. 

There is little danger that, when public opinion is 
active on the laborer's behalf, it will operate to make 
the disabilities of labor permanent ; for its influence 
will be principally exercised in forms which give the 
laborer confidence in his claims, and make him more 
resolute in his efforts to enforce them. Public 
opinion can strengthen the laborer's position because 
there is something depressing in being in a minority, 
and the employer is, to some extent, subject to this 
common failing. Thus, even when public opinion 
finds no more forcible expression than in letters to 
the newspapers, its influence on the industrial situa- 
tion may be considerable ; and, when the mind of a 
whole community is strongly impressed with the 
justice of the laborers' claims, the employer will not 
be able to follow up his advantages so promptly and, 
at the critical moment, his hand may be stayed 
through a dread of social disapprobation. Occa- 
sionally, public opinion makes a decided protest 
against the rapacity of the employer and expresses 
its protest not merely in words but in money con- 
tributed to assist a picturesquely depressed class in 



Public Opinion as a Wages Factor. 171 



its struggle for economic freedom or higher wages. 
The great dock strike in London was a success be- 
cause of popular sympathy and popular contribu- 
tions. The demand for the dockers' "tanner" 
approved itself and public opinion was aroused 
against the magnificence of the dock companies' 
attitude — the attitude of the Friend of Humanity 
to the Knife Grinder. 

" I give thee a sixpence. I will see thee damned 
first." 

The influence of public opinion * has hitherto been 
exerted on behalf of labor, only in a capricious and 
a spasmodic way ; and the merits of the case have 
usually had little to do with the matter. Public 
opinion is not a force on which the friends of labor 
can place reliance ; for it might easily be thrown into 
the opposite scale whenever the convenience of the 
public is threatened. The increasing humanitar- 
ism or sentimentalism of the public, and the in- 
creased information which all men have of the way 
in which the other half lives may suggest to the 
more hopeful that, in the future, public opinion will 
strengthen the laborer, not merely in the dramatic 
struggle of the occasional strike, but also in the 
steadier contest of which a strike is but a violent 
episode. There is no doubt a growing interest in 

* The distinction drawn between legislation and public opinion is 
not absolute. Legislation is but crystallized public opinion, and the 
most beneficent pieces of labor legislation, e. g., the Factory Acts, 
etc. , have been carried as a result of the systematic pressure of en- 
lightened public opinion. 



ty'2 The Bargain Theory of Wages. 



labor questions on the part of those who make or 
mold public opinion. Newspapers and magazines, 
church congresses and scientific associations, show 
the same tendency; and this social interest will un- 
doubtedly operate more fully and more steadily than 
it has done towards the end of the amelioration of 
the condition of the working classes. But as yet 
public opinion is, itself, in need not merely of being 
roused but also of being educated. It will be edu- 
cated more by the force of example than by the force 
of the precept. The influence of those model em- 
ployers from Leclaire to Mr. Mather, who have 
endeavored in part to see labor questions from the 
standpoint of the laborer himself, is already begin- 
ning to have effect on public opinion ; and the in- 
fluence of State and municipal authorities is being 
exerted in the same direction. The example, which 
is being set in many countries by the government 
and by public authorities in establishing an eight 
hours day, as the United States government has 
done for its employees, in inserting in all contracts 
a clause requiring a trade-union minimum wage to 
be paid by the contractor to his employees, as the 
London County Council does, or in suggesting, as 
Mr. Fowler did, in 1893, when President of the Local 
Government Board, in a circular to local sanitary 
bodies, that public works should be executed and 
public contracts given out at the season when em- 
ployment is otherwise scarce — is likely to create a 
sentiment which will assist the laborer, and assist 
him in a manner which can involve few of the dan- 



Public Opinion and the Wages Question. 173 



gerous consequences which generally follow from 
legislative interference with the course of industry. 
The influence of this sentiment may involve some 
injustice to employers who are not backed by the 
public funds, but the laborer's necessity will cease 
to be regarded as the employer's opportunity. The 
ultimate result will be, through sympathy, a devel- 
opment of conscience among employers, and the 
creation of a disposition to pay without compulsion 
all that the laborer is really worth rather than merely 
what he can be forced to take. The process of ele- 
vating business to the rank of a profession, through 
the pressure of outside opinion, will necessarily be 
slow ; but the sporadic appearance of profit sharing 
schemes, in one form or other, shows that the old 
individualist standpoint may be in time abandoned. 




CHAPTER V. 

THE MOBILITY OF LABOR. 

NOTWITHSTANDING Adam Smith's classical 
caution that " man is of all sorts of luggage 
the most difficult to be transported," * the early 
English economists postulated a perfect mobility of 
labor; and, by a strange perversion, admitted only 
as a possible and merely theoretical exception the 
obvious fact of the immobility of labor through 
custom and ignorance. Mobility was the method 
by which competition worked to secure equality of 
wages. It is probable that, for these economists, 
equality of wages meant merely an arithmetical 
equality, not an equality of net advantages, or a 
real equality of payment according to the actual 
amount of work done as measured by the result. 
Even those who reject the Wages-Fund Theory 
continue to be partly influenced by the artificial 
simplicity of the arithmetical ideal. Prof. Walker 
declares f that a difference in wages which would be 

* Wealth of Nations^ p. 31. 

f Walker, Wages Question, p. 184. 

174 



The Necessity of Mobility, 175 



sufficient to induce a man to cross the Atlantic is 
often insufficient to send him from one part of the 
kingdom to another, ignoring, inconsistently for the 
time being, the fact that the northern laborer may be 
more efficient than the southern, in an even greater 
degree than the difference of wages indicates. He 
seems to regard differences in wages as proving the 
absence of mobility ; whereas mobility and competi- 
tion, while they will secure the removal of accidental 
differences of wages, due to local failures of the 
equation of demand and supply, have no tendency 
to level up the wages of inefficient workmen to the 
same height as those of efficient workmen.* The 
facility with which the Wages-Fund Theory assumed 
an arithmetical form possibly predisposed the Theo- 
rists in favor of the arithmetical ideal. 

The mobility of labor is a postulate necessary to 
make the Wages-Fund Theory march. As one de- 
parts from it and the necessity for mobility, as a 
theoretical postulate, decreases, the defects of mo- 
bility, as a social and economic ideal, become more 
prominent. Those customs and prejudices which 
the theorists regarded merely as hindrances to the free 
play of competition, come to be regarded as social 
forces of great value. Dr. Smart, the English expo- 
nent of the newest theory of distribution, goes to 
the opposite extreme, perhaps, when he declares : 
"Physically, labor is not mobile; historically it has 
never been mobile; and, ethically, it should not be 

*See the tables given in chapter vi., p. 212, for evidence as to in- 
fluence of mobility to level up wages and remove accidental differences. 



17^ The Bar gam Theory of Wages. 



mobile. " '^ This terse statement is possibly too epi- 
grammatic to be altogether accurate ; but there is a 
larger measure of truth in it than in the Wages-Fund 
Theory postulate of universal mobility. Histori- 
cally, even the Theorist would probably admit, labor 
has never been mobile ; and he might go so far as to 
allow that there are great hindrances, even at present, 
to the mobility of labor; but that, ethically, labor 
should not be mobile is contrary to his most cherished 
opinions. The change of views regarding mobility is 
part of the general change of opinion regarding the 
whole wages question. It is incorrect to say that at 
present labor is not in any degree mobile ; because 
the great characteristic of an age of transport is the in- 
creasing mobility of labor; but, at the same time, as 
the physical difificulties of transporting the human 

luggage " diminish, the ethical objections to mo- 
bility increase. While the difificulties of transport 
were great, only the more self-reliant and self-de- 
pendent had the enterprise to change their habita- 
tion. There was then no social danger, but great 
social and individual benefit, in the migration of 
labor. When, however, these difificulties of trans- 
port no longer deter the weakest in character and 
self-reliance from emigrating from one end of the 
earth to the other, it is well that the ethical objec- 
tions to mobility should be emphasized. 

As industrial competition is probably only a short- 
lived, and not over-beautiful, stage of transition from 
custom to combination, so mobility is only a tem- 

* Studies in Economics^ p. 171. 



A Substitute for Mobility. 177 



porary postulate of the theory of distribution. 
When the bonds of custom have been broken, and 
the interests of the worker are no longer safeguarded 
by tradition and public opinion, it is necessary that 
the laborer should be ready to follow wherever his 
economic interests calls. It is practically the only 
way by which any measure of justice in distribution 
can be obtained. As soon, however, as a substitute 
for migration is available, all the ethical objections, 
hardly silenced hitherto by the plea of necessity, 
become vociferous. The combination of labor pro- 
vides a substitute for mobility, not a complete 
substitute removing altogether the necessity of mi- 
gration, but doing away with the more objectionable 
features. Mobility is no longer the only and indis- 
pensable condition of justice to the wage earner. 
The trade-unions in the early stages of their history 
encouraged migration ; but as they have grown in 
strength and become able to enforce their demands 
without recourse to a strike they have modified their 
policy. There is no longer the same need to facili- 
tate migration because " the more perfectly a trade 
is organized the less necessity is there for its mem- 
bers to travel in search of work." * Within the last 
twenty years, trade-union policy with regard to 
travelling benefits has completely changed. This is 
due in part to the fact that improved communication 
has levelled wages up so as to bring about some 
measure of equality of net advantages ; and also in 

* From evidence of Pattern Makers Association before Royal 
Labor Commission (Eng.), quoted by Drage, The Unemployed, p. i8. 



178 The Bargain TJieory of Wages. 



part to the fact that the same cause has universahzed 
trade depression when it occurs, and rendered even 
emigration a futile endeavor to escape from bad 
trade. The network of trade-unions covers the 
land; and, as local unions have been federated into 
national and international unions, while govern- 
ments and municipalities have organized labor 
bureaus and industrial agencies, information re- 
garding work and wages has become more definite. 
Instead of receiving a travelling benefit, the trade- 
union out-of-work member has his fare paid to a 
district where work may almost certainly be ob- 
tained. The practice has become obsolete because 
organization is better and the unions have definite 
reports of the state of the labor market; and be- 
cause as the necessity of the policy becomes less 
urgent the social and ethical objections to it become 
more convincing. Some unions discarded the policy 
because it fostered a roving spirit and degraded the 
members : others have abandoned it because, as in 
the case of the iron founders, it was made use of to 
secure a free hohday. Even from the narrowest 
trade-union point of view, the policy was one marked 
out for abolition, so soon as it became possible to 
do away with it. The object of trade-union policy, 
collective bargaining, cannot be achieved unless a 
union can control its own members; and the rov- 
ing unsettled spirit which took possession of the 
professional mendicant as Mr. Howell calls him, 
rendered him less, not more amenable to union dis- 
cipline. From the broader point of view, moreover, 



Ethical Objections to Mobility. 179 



to which to some extent,* the older and stronger 
unions have risen, viz., that the moral and intel- 
lectual progress of the workers is essential even for 
material success, the policy of assisted migration is 
open to weighty objections. It is not that the home 
and place attachments are hindrances to mobility 
but that, from the point of view of good citizenship, 
these hindrances should not be removed but built 
up. Ubi bene ibi patria, as a maxim of politics or 
of industry, gives us neither good citizens nor good 
workmen. Mobility may often be the only safe- 
guard of the interests of the worker; but when, by 
efificient organization, it can be superseded and the 
same, or nearly the same, benefits achieved without 
sending men forth, homeless wanderers from one 
job to another, society is the gainer. There are still 
many trades and industries where the free circulation 

* " At one time tramping was systematic and general ; and it be- 
came a great nuisance, for many men merely used the society as a 
means for enabling them to tramp all over the country, living upon 
the funds of the union. . . . This practice has greatly diminished 
of late years ; ... it so degenerated as to become little better 
than a kind of professional mendicity." — Howell, Conflicts of Capital 
and Labor, pp. 141-142. 

Since 1877, "the system of travelling benefit has declined more 
and more. It is discouraged by nearly all the better organized 
unions throughout the country and, as a rule, rightly so. In the 
London Society of Compositors and the Scottish Typographical As- 
sociation travelling relief has been abolished for several years, the 
members receiving a removal grant to enable them to proceed to an 
engagement they may have obtained in any part of the United King- 
dom." — Ibid., p. 142, n, Cp. also, Drage's The Unemployed, p. 
18, n. 



i8o The Bargain Theory of Wages. 



of labor is essential because no other method can be, 
or, at any rate, has been, devised to secure the same 
result. Where a trade is not organized, where the sup- 
ply of workers, in the unskilled trades especially, is 
liable at times to be far in excess of the demand, it is 
of vital importance that every worker should be ready 
to move to a place where the demand is greater. As a 
social factor, combination is preferable to mobility 
and, as an economic force, not less powerful. The 
same results may be achieved by either method. 
Organized trades have discarded their policy of en- 
couraging migration : unorganized trades depend 
largely on mobility for any improvement in the con- 
dition of labor which they desire; and their trust is 
often justified by the results. The wages of domes- 
tic servants have risen, both really and nominally, as 
far, and as quickly, as the wages of any other class ; 
and, in their case, the rise is due entirely to their 
mobility. Domestic servants are not in any way 
organized, unless it be by a kind of tacit combina- 
tion ; but, as a class, they possess the very highest 
degree of mobility, as any housekeeper will most ve- 
hemently testify. They are ' ' found ' ' in everything : 
they have no local and few personal attachments, 
except of a transitory nature, to bind them to any 
particular place: the demand for servants exceeds 
the supply; and, without a " character," they can 
obtain a situation. The result is, that in the rise of 
their wage, they exhibit the maximum advantages 
of mobility; but, as a class, are coming to exhibit 
the mental and moral deterioration in which exces- 



Trade Mobility and Place Mobility. 1 8 1 



sive mobility results. In the domestic servant the 
early English economist might find his ideal of the 
free circulation of labor, but it has no beauty that 
we should desire it. 

The phrase, mobility of labor, covers two very 
different kinds of migration which, ordinarily, have 
little to do with each other. It includes the migra- 
tion from one industry or occupation to another, 
which we may call, trade mobility ; and migration 
from one district or country to another, place mobil- 
ity. The former is undoubtedly the more difficult 
and, unlike the latter, is becoming increasingly more 
difificult. The improved means of transport and 
communication which rendered place mobility much 
easier have, on the whole, as part of the great 
modern movement towards specialization, helped 
to make trade mobility harder, if not a practical 
impossibility. It is true that there is the possibility 
of exaggerating the restrictions of specialization. 
Prof. Marshall has shown * how general intelligence, 
in nearly all industrial occupations, is rising in im- 
portance as compared with specialized skill; and, to 
the extent in which this holds, increasing specializa- 
tion does not necessarily imply greater permanence 
of trade boundaries. Specialization in the form of 
localization of industry naturally destroys migration 
from district to district ; while, as we shall see later in 
this chapter, place mobility has a certain tendency to 
promote trade mobility where general intelligence is 
more in demand than highly specialized skill. When 

* Marshall's Principles of EconoDiics, Book IV., c. q, passim. 



1 82 The Bargain Theory of Wages. 



specialization has proceeded so far that the market 
for speciaHzed labor is a local market, migration 
from district to district is of comparatively little im- 
portance, unless the worker is prepared to take the 
step of changing his trade at the same time. 

The early economists spoke lightly of trade mo- 
bility, as if there were no real hindrances, as if, in a 
word, workmen took up, or, at any rate, could take 
up, a new trade every week. The assumption is 
necessary for the theory, and they make it unhesi- 
tatingly. Even Adam Smith, who has warned us 
that man is " of all sorts of luggage the most diflEi- 
cult to be transported," '^ forgets the significance of 
his own warning, and assumes that " the whole of 
the advantages and disadvantages of the different 
employments of labor . . . must, in the same 
neighborhood, be either perfectly equal or continu- 
ally tending to equality " ; although, to secure such 
an equality it would be almost necessary for every 
workman to be ready and able to change his trade 
at a moment's notice. Few economists, except 
McCulloch, to whom it seems to have been given 
to carry everything to an extreme, have gone so far. 
Most have recognized, more or less explicitly, the 
existence of what Cairnes called non-competing 
groups within which there may be perfect mobility 
but between which there is practically no migration. 
Between the extremes of Adam Smith and Prof. 
Cairnes the truth Hes. Unless the non-competing 
group is so narrow as to include only one trade, 
* Wealth of Nations, Book I., p. 41. 



Trade Mobility. 183 



there is no such perfect mobihty as Cairnes demands ; 
while,between the groups there may be httle strength 
in the tendency to pass from one to another upwards, 
there is always a considerable movement downwards. 
So far as adult labor is concerned, trade mobility 
unfortunately generally spells degradation from the 
ranks of the skilled to the unskilled.* There is 
always, owing to old age and infirmity and to lack 
of adaptation, a movement downwards; and, as the 
amount of work which can be done without any 
previous training, is becoming less, the degradation 
is apt to be very sudden, from skilled labor past un- 
skilled labor to casual labor. We do occasionally 
meet men who, in their time, have played many 
parts, and yet have maintained their grade or even 
risen in the scale; but, as a rule, the measure of 
their total success is not such as to lead us to place 
much stress on trade mobility as an agent in indus- 
trial fortune. Even in America, the paradise of self- 
making men, the proportion of those who rise, is 
very small. A great many instances of striking suc- 
cess may be enumerated, but it seems probable that 
the day of the self-made man who rises from the 
ranks is past. 

It is more than doubtful whether trade mobility 
increases the real wages of the migrant. By chang- 
ing from one occupation to another he may secure 
an immediate advantage; but, to secure this advan- 
tage of opportunity (for that is all it usually amounts 
to), he sacrifices the whole rent of ability which he 

* But see later in this chapter, p. 190, 



1 84 The Bargain Theory of Wages. 



might have gained from his previous training. The 
changes are often, in the long run, short-sighted. It 
might almost be laid down as a general rule, to which 
of course there are particular exceptions, that when 
an individual changes his trade or his country, after 
he has served his apprenticeship or completed his 
training, we have a tolerably certain indication, if 
not of failure, yet of very moderate success in the 
new calling. To seek an immediate advantage by 
the sacrifice of past training leads to the goal reached 
by those whose parents, or themselves, have been 
unable to resist the temptation offered by the high 
immediate returns from odd jobs. Just as the earn- 
ings of those who follow two different employments 
do not exceed the earnings of those who confined 
themselves to one, so men who pass readily from 
one employment to another at the suggestion of the 
slightest immediate advantage seldom succeed ulti- 
mately in bettering their position ; for we must take 
account not merely of the earnings of a week or a 
year but of a working lifetime, and consider the rent 
of ability which may arise after years of patient in- 
dustry, in one occupation.* 

* An exception must be made in case of what may be called step- 
ping-stone employments. Very few of the men who enter the teach- 
ing profession in America as public-school teachers have any intention 
of remaining in the profession. It forms a very convenient means 
for students whose funds are exhausted by the expenses of college to 
earn enough to enable them to attend a professional school. It is 
good for the young men that they should have an opportunity of 
earning immediate high returns but is, on the whole, very bad for the 
Status of the profession, 



Tlie Disposable Fund of Labor. 185 



Since the exposure of the Wages-Fund Theory, 
few writers can be found to assume the trade mo- 
biHty of adult labor. Prof. Cairnes declares that, 
within the non-competing groups mobility, and, 
through mobility, equality of advantages, is secured 
by the existence of a disposable fund of young per- 
sons annually arriving at industrial age. In one 
sense the energies of these young persons are at dis- 
posal to be distributed among the industries which 
offer the largest net advantages; but, even granting 
the fullest measure of freedom of industrial choice, 
it is questionable whether the fund is large enough 
to produce the desired effect. The number of young 
persons, annually arriving at industrial age, does not 
constitute more than two and a half, or three per 
cent, of the total number of workers ; and, in the 
best of years, the trade-union returns show that as 
large a proportion of the best workers of the country 
are out of work. Consequently, there is no industry, 
or small group of industries, ready and able to 
absorb all these new recruits to the labor army; 
and, in the absence of a special opening, the proba- 
bility is that the annual two or three per cent, will 
be distributed over the whole industry of the 
country. 

It is obvious that, apart from predilections for 
particular occupations, on the part of the children 
(which are naturally not based on any estimate of 
the net advantages of the employment), the disposi- 
tion of this fund of labor depends on the knowledge 
and foresight of the parents and on the sacrifices 



1 86 The Bargain Theory of Wages. 



they are prepared to make. The knowledge is not 
always sufficient ; though most parents will make 
sacrifices for their children, sufficient, at least, to 
place the children in as good a position at the be- 
ginning as that at which they themselves stand. 
Farther than this, except in special cases, the aver- 
age parent is not prepared to go. Here and there, 
we may find men who are endeavoring to place 
their children in a better position than they them- 
selves occupy. Men whose ambitions have been 
thwarted often become ambitious for their children ; 
but we must beware lest our admiration of the sacri- 
fice lead us to overestimate the frequency of its 
occurrence. It is regrettable that, owing to the 
wrong development of our educational systems, 
these sacrifices are generally made with a view to 
secure for the children the chances of a professional 
or semi-professional career. The crowded state of 
the market for genteel unskilled labor shows that 
knowledge and foresight on the part of the parents 
are quite as essential as readiness to make sacrifices. 
It is rather on account of social position than on 
account of higher wages in the employment, that 
sacrifices are made by the parent ; and where the in- 
spiration of the hope of seeing a son " wag his heid 
in a poopit " is wanting, the sacrifices made are not 
very great. A great deal of the labor legislation of 
the last half century was passed to prevent the sacri- 
fice of the children for the temporary advantage of 
the parents ; and in that legislation we have an ob- 
jective and unsentimental estimate of how much 



Fathers and Sons 187 



some parents are prepared to do for their offspring. 
In large cities probably less is done for children by 
their parents than is done in the smaller towns and 
in the country. In spite of the great variety of 
occupations in a large city, it is often difficult to get 
a boy apprenticed. Employers are able to rely on 
the immigration of skilled artisans trained in the 
country and are, therefore, unwilling to take the 
trouble of training apprentices. The difficulty of 
getting boys apprenticed makes parents yield the 
more readily to what Mr. Charles Booth calls the 
temptation of odd jobs. In a large city, pay is 
more strictly according to the work done; and if a 
boy can do the same work as a man his remuneration 
will be almost as large as a man's. 

The consequence of the absence of customary 
wages is that the city-bred boy has abundant oppor- 
tunities of earning large immediate returns for labor, 
which requires little more skill than he has as his city 
birthright. It is not altogether a matter of wonder 
that the parents, almost disheartened by the cease- 
less struggle to keep a decent roof over their heads, 
should succumb to the temptation of adding such 
an amount to the family earnings as will make the 
difference between ceaseless worry and comparative 
content ; even although, what probably they do not 
realize, the boy may, in a few years, be left stranded. 

Most fathers will declare, as a matter of course, 
that they prefer to bring up their sons to any trade 
but their own ; but, equally as a matter of course, 
nine tenths of the disposable fund of labor will be 



1 88 The Bargain Theory of Wages. 

annually distributed according to the trade of the 
fathers. Sometimes, as in country villages, the dis- 
position will be accidental. A boy is apprenticed 
to a plumber or a carpenter according as it happens 
to be the plumber or the carpenter who requires an 
apprentice. In larger places, the fact that vacancies 
for apprentices are few, especially when the district 
has specialized, more or less, in one kind of pro- 
duction, or when the trade-union prejudice against 
apprentices is strong, and the fact that a father has 
exceptional opportunities of advancing his sons, 
afford a motive strong enough, were the influence 
of custom and habit not operative, to secure that 
the son follows his father's trade. In the best 
shops, indeed, those into which a father would en- 
deavor to introduce his son, preference is generally 
given to the sons of employees when a vacancy 
occurs.* 

The trade mobility of labor, whether of adults or 
of young persons, has never been very great. Adults 
cannot change without the sacrifice of the benefits 
of past training; while children are brought up to 
the trade of their parents because circumstances are 
stronger than the vague wishes of the parents. Prof. 
Walker asserts that till the mobility of the adult is 

* The first article in the regulations of Redouly et Cie. (Ancien 
Maison Leclaire), Paris, is to the effect that " the sons and nephews 
of the foremen of the workshops, of the workmen and employees, 
members of the noyau, are received as apprentices in preference to all 
others." — Canadian Blue Book, "Social Economy" (1889), p. 173. 
Elsewhere, though the preference is not so clearly announced, the 
practice is much the same. 



Effect of Place Mobility on Trade Mobility. 1 89 



secured there will be no force in the tendency for 
children to be apprenticed to trades other than those 
followed by their fathers. In view of the distinction 
between trade mobility and place mobility, we may 
modify this assertion to the form that till place mo- 
bility has been secured for the adult worker, there 
is very little opportunity of trade mobihty for his 
children. When the adult worker has changed his 
home, especially when he has emigrated to a new 
country with greater opportunities and a more open 
career for talent, the chances of the children adopt- 
ing a different occupation from their fathers are 
greatly increased. Emigration does not always 
secure to the emigrant the benefits he anticipated ; 
but it rarely fails to improve the chances of his 
children. 

Migration, or place mobility, has a certain ten- 
dency to promote the trade mobility even of adult 
labor — a tendency most marked in the case of emi- 
gration. Whether the migration from district to 
district of the same country or from the rural coun- 
ties to the cities has the same tendency, is not quite 
clear. The high returns for physical strength and 
for trustworthiness, with both of which qualities 
country-bred workers are comparatively better en- 
dowed than townsmen are, offer a temptation to 
rural emigrants to a large city to forsake a skilled 
trade for an unskilled occupation. There are many 
occupations in which these qualities rather than 
technical skill or alertness are required ; and conse- 
quently we find immigrants in large numbers in these 



190 The Bargain Theory of Wages. 



occupations.* We should also expect that the gen- 
erally trained labor of the provinces might, in many 
cases, prove unable to maintain its position in the 
highly specialized industries of the metropolis: with 
the result that a certain proportion of the emigrants 
would seek employment in the relatively highly 
paid unskilled occupation. Full statistics are lack- 
ing on this point, and those we have hardly justify 
any conclusion. The figures given in Booth's Life 
and Labor of the People, by Mr. H. Llewellyn Smith, 
show that out of a thousand emigrants a slightly 
smaller number of skilled artisans is found working 
in skilled trades after migrating to the town. Out 
of one hundred and fifty-nine skilled artisans 
scheduled, four only have dropped into the ranks of 
the unskilled, while six of the total five hundred 
included in the table, one of whom, however, was a 
boy of fifteen when he migrated from London, had 
risen from the ranks of unskilled; or 2.5 per cent, 
of the skilled artisans have fallen, while 1.7 per cent, 
of the unskilled have risen to the ranks of skilled 
labor, f 

* In December, t888, 70 per cent, of the city and the Metropolitan 
Police (London) were born elsewhere than in London. — Booth's Life 
and Labor of the People, vol. iii., p. 87. In one of the sub-districts 
of the city of London the proportion of outsiders is as high as 46 per 
cent, of the total population of the district ; and the fact is accounted 
for by the nature of the occupation of the permanent portion of the 
population of the city, viz., caretaking. — Ibid., p. 124. 

f Booth's Life and Labor, vol. iii., p. 140. Five hundred cases 
were actually scheduled, but to obtain a basis for comparison one 
thousand is taken (p. 140) as the standard total. 



Emigration and Trade Mobility. 19 1 



Emigration seems to promote trade mobility more 
readily than migration from the rural counties to the 
cities does. This is possibly due in part to the fact 
that emigration is a much greater change and creates 
a disposition to make further changes when occasions 
offer * ; but more largely, probably, to the fact that 
in the new countries, towards which international 
migration is mainly directed, the division of em- 
ployment is not so marked as in older industrial 
communities. Consequently general intelligence is 
relatively more important in a new country than 
highly specialized ability ; while the greater use of 
automatic machinery, owing to the dearness of labor, 
has reduced many occupations to the class of the un- 
skilled, though nominally, they are still skilled indus- 
tries. The relative disadvantage at which highly 
specialized ability is placed in the colonies is so 
notorious that the British Emigrants' Information 
Ofifice deliberately warns skilled artisans that the 
colonies are no place for them. 

" In new countries, there is not the same strong line 
drawn between different employments and different 
branches of the same trade, as in our own. , . . The 
more specialized a man has become in his work and 
calling, the less fitted is he to emigrate, partly because 
he is unlikely, in most cases, to find an opening in his 
own specialty in the colonies, partly because he is not 
suited to turn his hand to general labor," f 

* See chapter iii., pp. 107, loS. 

\ Repoj-t of Eini^rauts Information Office, 1888. 



192 The Bargain Theory of Wages. 



Adaptability, rather than highly specialized skill, 
is the condition of success for an emigrant; and the 
comparative youth of the emigrants renders them 
much more adaptable. 

In spite of the fact that the enterprise and the 
adaptability arising from youth would prepare us for 
some measure of trade mobility as a result of emi- 
gration, we are not quite prepared for the apparently 
enormous amount of it. Children form a large pro- 
portion of the total number of emigrants and are a 
specially disposable fund of labor. They are not in- 
cluded in the occupation returns at the port of entry ; 
while in later years they are included in the numbers 
of foreign-born employed in various industries. We 
have, however, a more serious movement to explain 
than can be thus accounted for. Many emigrants 
must actually rise in the standard of labor, be- 
coming at least nominally skilled laborers; for while 
seventy per cent, of the immigrants at the port of 
entry who have had any occupation return themselves 
as laborers, more than thirty per cent, of the total 
working population of the United States engaged in 
mining, manufacturing, and mechanical pursuits is 
foreign-born.* The foreign-born formed 14.77 of 

* The practice now abandoned by the provincial governments in 
Canada of giving assisted passages to agricultural laborers probably- 
made the percentage of laborers vi^ho entered somewhat greater than 
it really was. Naturally accurate information is entirely wanting, 
but there are several complaints from trade-unionists and others of 
mechanics taking advantage of the assistance reported ia the evidence 
before the Canadian Labor Commission. The deception cannot have 
been carried on to any great extent. 



Emigration and Trade Mobility. 193 



the total population in 1890, but they are more than 
thirty per cent, of the total engaged in the skilled 
industries. A very large number of those who are 
unskilled laborers when they arrive must within a 
few years become skilled or quasi-skilled laborers. 
The percentages which are given below may, in 
some cases, include the unskilled labor employed in 
every mill and foundry; but, after every allowance 
is made, the unskilled laborers of Europe become in 
a short time skilled laborers in America. The im- 
migrant laborer 

" comes ready to take up any occupation in which it can 
earn a living. I do not suppose that the French-Cana- 
dians when they come to the United States enter them- 
selves as cotton-mill operatives. Probably they have 
never seen a cotton mill in their lives. They are only 
potentially cotton-mill operatives ; but they fill up the 
mills just the same. So very likely the Hungarians who 
are imported to dig coal in the Hocking Valley are not 
miners when they arrive." * 

Although only an insignificant fraction of the im- 
migrants are skilled laborers when they arrive, yet 
the census returns show that thirty per cent, of the 
skilled labor of the United States is of foreign birth. 
In some districts the proportion is much higher. In 
Minnesota it amounts to 47.5 per cent. ; in Wiscon- 
sin, 48.8; in Illinois, 43.3; in Michigan, 43.4; in 
Massachusetts, 35.6; in Rhode Island, 39.1 ; in New 

* Professor Mayo-Smith's Emigration and Migration, p. 127. I 
am also indebted to this book for the statistics quoted below. 
13 



194 I'he Bargain Theory of Wages. 



York, 38.7; and in Connecticut, 32.4. In some 
skilled industries, the proportions are considerably 
in excess of the general average for the country ; 
while the number of immigrants following these 
occupations at the time of entering the country is 
very small. In 1886 there were only twelve occu- 
pations in which the number of immigrants exceed 
one thousand, and in many of these industries from 
a third to a half of the employees throughout the 
country were of foreign birth. Thus there were in 
il 



TABLE OF OCCUPATIONS OF IMMIGRANTS AT PORT 
OF ENTRY AND OF FOREIGN-BORN IN U. S. 

1886. 1880.* 1880, 

TOTAL NUMBER PERCENTAGE OF 

OCCUPATIONS. IMMIGRANTS. ^ „ ,. „ WORKERS OF 

OF WORKERS. 

FOREIGN BIRTH. 

Bakers 1209 41,309 56 

Blacksmiths 1420 172,726 27 

Butchers 1190 76,241 38 

Carpenters 3678 373,143 23 

Masons 1803 102,473 35 

Shoemakers 1681 194,079 36 

Cigar makers ii6o 56,599 44 

These are minor industries ; but in the larger in- 
dustries the proportions are nearly as high, while the 
number of entries is smaller. Of cotton-mill opera- 
tives, forty-five per cent, were of foreign birth ; of 
woollen-mill operatives, thirty-nine per cent. ; of 
paper-mill workers, thirty-three per cent. ; of iron 
and steel workers, thirty-six per cent. ; of curriers 

* Compendium U. S. Census Report, 1880, table 103. 



Skilled and Unskilled Labor. 195 



and leather dressers, forty-five per cent. ; of en- 
gineers and firemen, twenty-seven per cent. Many 
of these industries, it is true, since the introduction 
of machinery, have gradually been coming to have 
less and less claim to the title of skilled trades; and 
it is probable that many of the immigrants become 
skilled laborers only in name. Thus in 1880,* of 
133,756 tailors and tailoresses, 71,571, or more than 
fifty-three per cent., were of foreign birth, and the 
amount of skill possessed by the victim of a sweater, 
though it may be sufficient to justify the title skilled, 
is, after all, not very great. Mr. Schloss gives us, 
from the evidence taken by the Lords Committee 
on Sweating, an instance of the evolution of an un- 
skilled emigrant into a skilled workman. A witness, 
Hirsch by name, 

" had been an agricultural laborer in Russia and had 
come to England six months prior to his appearance 
before the committee. He presents himself to a coun- 
tryman of his, who is himself a journeyman finisher em- 
ployed by a sub-contractor, ' He gave me nothing the 
first week, but he gave me food, and he gave me a shil- 
ling for the second week with food.' Then Hirsch is 
advanced to five a week and now he is making eight. * I 
start (the evidence continues) on Sunday morning, com- 
mencing at seven and work up till ten, and the other 
days I start at six and work right up to ten as well, but 
on Thursday I work up to twelve o'clock and on Friday 
come again at six, then I work till sunset.' " f 

* Compendium U. S. Census Report, 1880, table 103. 
f Schloss, Industrial Remuneration, p. iii. 



196 The Bargain Theory of Wages, 



While emigration undoubtedly tends to raise many- 
workers from the ranks of the unskilled it remains 
more than doubtful whether the worker is really 
benefited to the extent the classification seems to 
connote. The skilled trades which he adopts are 
now, only in name, skilled trades; and as an un- 
skilled laborer his first condition was often, not 
worse, but better. 

Trade mobility, then, though a necessary postu- 
late of the Wages-Fund Theory, has never been a 
very important factor in the determination of wages. 
Adult labor seldom migrates from one industry to 
another; and where it does move the results are not 
altogether good. Though as a result of emigration 
large numbers seem to rise in the scale of labor the 
rise is often merely nominal ; and the amount of 
trade mobility, even under these circumstances, is 
hardly sufficient to bring about the equality of net 
advantages. McCulloch declares that " the dis- 
crepancies that actually obtain in the rate of wages 
are all confined within certain limits — increasing it 
or diminishing it only so far as may be necessary 
fully to equalize the favorable or unfavorable cir- 
cumstances attending any employment." * To 
secure such a real equality of reward, the actual in- 
fluence of the fullest measure of that trade mobility 
which is so lightly postulated would have to be ex- 
erted ; and our examination has shown us that no 
such degree of mobility is operative. Place mo- 
bility, without trade mobility, could secure only 

* Principle of Political Economy (Murray's Reprint), p. 124. 



Place Mobility and Trade Mobility. 197 



that within the Hmits of a single trade there might 
be the world over a practical equality of reward : 
without trade mobility inequalities of returns in 
different trades might long continue even were the 
volume of emigration very large. 

Place mobility, though not theoretically so im- 
portant, is, and always has been, of more practical 
importance as a wages factor than trade mobility. 
The migration of labor from one district to another 
is easier than the change from one employment to 
another. The conservative influence of custom and 
tradition operates against both forms of mobility; 
but, since a man's occupation becomes so much 
more intimately a part of himself than the locality 
in which he lives, the change implied in trade mi- 
gration is so much the greater than that implied 
even in emigration. There are other sentiments 
which color a man's life beside his trade traditions 
and attachments; but these — religion, national 
sentiment and local patriotism, home ties and 
family attachments — are, in part, not sacrificed by 
emigration ; and, when they cannot be enjoyed in 
the new land, the sacrifice involved is not recognized 
till months after the change has been made. On 
the other hand, the dangers and drawbacks of 
change of occupation are immediately felt. The 
dangers are so obvious that we may take it for 
granted that the change will hardly ever be made 
without the fairly sure prospect of material advan- 
tage. Sentiment enters less, and practical advan- 
tage more, into the motives which lead to change 



1 98 The Bargain Theory of Wages. 



of employment; and as the organization of industry 
becomes more complex, the possibility of advan- 
tageous change from one occupation to another 
diminishes. The change involves the learning of a 
new trade, and, during the period of learning, the 
acceptance of a low rate of wages. The average 
rate of wages in the new occupation may be higher 
than the rate in the old ; but the wages of a learner 
in the new cannot, if the trade be worth adopting, 
for a long time, be much more than the earnings of 
the former occupation. The advantage sought is 
seldom sure enough, or large enough, to cover the 
risks of the change; and, as place mobility equalizes 
the returns in a trade the world over, there will be 
less inducement to a man to change his occupation 
to escape a local disturbance of wages. 




CHAPTER VI. 



THE MOBILITY OF LABOR (Continued ). 



BEFORE the Industrial Revolution there was 
little migration of labor: in part, because free- 
dom of movement was restricted by poor laws and 
other legislation ; but also because there was less 
necessity for it. Supply was more closely then 
than now governed by demand ; production being 
for a steady and a known market. The area of the 
market was limited and the distinction of employer 
and employed was not so definitely drawn. When, 
however, the area of the market extended and ma- 
chinery was introduced, trade became subject to 
violent fluctuations. Demand and supply are no 
longer in correspondence, and industry is alternately 
inflated and depressed. The laborer is the passive 
victim of this want of correspondence. He is no 
longer the small master producing for the known 
market, but a laborer for hire. He must live by the 
reward of his labor from day to day ; and the fluctua- 
tions of industry tend, on the whole, to depress 
wages. The fluctuations are not off"set by each 

199 



200 The Bargain Theory of Wages. 



other. The laborer's remuneration in good times 
is scarcely ever sufficient to tide him safely over bad 
times without recourse to the " poor man's banker," 
or to credit at the store ; for in bad times, despite 
the equalizing effects of machinery, there is some- 
times great lack of employment in the district in 
which he lives. Since the laborer must, so to speak, 
deliver the labor himself, it matters little that work 
is plentiful elsewhere, if the laborer remains where 
his commodity is a superfluity. Consequently, 
mobility is a necessity for the equation of the de- 
mand and the supply of labor, or would be, were 
trade fluctuations merely local. Unfortunately, as 
the knowledge of industrial conditions in other dis- 
tricts increases, the area of depression widens. The 
same forces which have rendered migration easy 
make trade depression universal. It is difficult, 
now, to imagine any trade depressed in one district 
and prosperous in another, as it might have been 
before the Industrial Revolution. The improved 
means of communication which naturally promote 
the tendency of labor to migrate have equalized 
industrial conditions and thus destroyed the induce- 
ment. We shall see below that the volume of migra- 
tion is decreasing and at the same time becoming a 
regular movement. We can hardly speak of the 
circulation of labor because the movement is steadily 
in one direction — towards the cities. 

We need not draw any rigid distinction between 
the two forms of place mobility, migration and emi- 
gration. The pohtical effects are different, but, in 



Misiratioii and Emigration. 20 1 



essence, the economic effect is nearly the same. It 
has generally been assumed that migration is a much 
more extensive movement than emigration : so much 
more extensive a movement that the whole orthodox 
theory of foreign trade is based on the difference. 
To justify the hypothesis of the economic nation in 
the theory of international trade it is necessary to 
assume that the mobility of labor within the nation is 
practically complete ; while between the nations it is 
practically non-existent. The assumption is not even 
approximately accurate. The volume of migration 
within the nation is not only not so great as is sup- 
posed, but is shrinking; and emigration which, it is 
supposed, is not sufficient in amount to bring about a 
real equality in the cost of production must, in some 
cases, be a more powerful industrial factor than migra- 
tion. Between the Maritime provinces of Canada and 
the New England States the movement is steadier 
than the movement from these provinces to Ontario 
and Quebec; and the city of Boston contains a 
very much larger number of " provincialists " than 
Quebec, Montreal, and Toronto.* It is hardly pos- 

* The aim of a protective policy, in the language of the orthodox 
theory of foreign trade, may be said to be the identification of the 
economic with the political nation. The " National Policy," as it is 
called in Canada, therefore included the improvement of the internal 
means of communication. The table of Canadian migration below 
shows that the effect of this part of the policy is not appreciable, but 
without it the " N. P." would have been a greater organized injustice 
than it was. The usual method was adopted of compensating one 
class for the special burden placed upon it by placing another equally 
heavy burden upon some other class or section of the community. 



202 The Bargain Theory of Wages. 



sible to make a comparison of the respective vol- 
umes of migration and emigration. The census 
returns of those countries in which both movements 
take place are not detailed enough to permit a 
thorough comparison. For instance, in the English 
census, the county is taken as the unit area: in the 
Canadian census, the province. The unit area, in 
either case, is too large. Probably the greatest 
amount of migration takes place within the unit 
area. The English census of 1881 shows, that of 
8,877,623 persons who resided elsewhere than in the 
county of their birth, 4,049,918, or nearly half, were 
resident in the counties bordering on their native 
county; and probably at least another four millions 
have migrated from one place to another within the 
county of birth. The same remark holds true, to 
an even greater extent, of the returns of the Cana- 
dian census, where the unit is the province. Census 
returns, moreover, can take no account of successive 
removals by the same individual; and ten years is 
a period long enough to cover several changes. The 
volume of migration must, consequently, especially 

Thus Nova Scotia received, as its compensation for tlie manufacturing 
monopoly in Ontario, tlie duty on foreign coal and iron. This prac- 
tice has been found, in all countries, politically necessary, but is none 
the less an impossible and ridiculous method of distributing the sec- 
tional benefits of protection throughout the community. The task of 
identifying the political and the economic nations in Canada, and 
thus securing a just distribution of the gains and losses of monopoly, 
is peculiarly difficult because there will always be a greater movement 
between Canada and the United States than between Quebec and th§ 
English provinces of Canada, 



Volumes Compared. 203 



in the case of Canada, be much larger than is set 
down in the census returns. 

Even when every allowance is made for the in- 
completeness of the figures, total migration is not 
so much greater in volume than emigration as to 
justify the assumption of the theory of international 
trade. The total number in any given year of those 
who have migrated, is not the same as the volume 
of migration in that year; and it is the volume of 
migration that is the industrial factor. 

Migration, however, is not only of less compara- 
tive importance as an economic force in distribution 
than is assumed, but is also a factor of decreasing, 
or, at any rate, not of increasing importance.* The 
volume of migration reached its maximum ten or 
twenty years since ; and the opening of new lines of 
communication and the lessened cost of transit have 
been apparently without effect on the volume. 
Within the United States the volume of migration 
has not merely been stationary, but has sensibly 
shrunk. This is due in part to the fact that the 
colonizing period in the history of the United States 

* According to the British Census Report, 1891, the native 
population shows stationary habits of a very decided character. In 
1871, 74.04 per cent, of population were resident in native county ; 
in 1881, 75.19; in 1891, 74.86. 

It would appear that though emigration to foreign countries in- 
creased enormously between 1881 and i8gi, there was no correspond- 
ing increase in the migration within the borders of England and 
Wales themselves, notwithstanding the increased facilities of locomo- 
tion, the extended knowledge possessed by the working classes as to 
the conditions of life in parts outside their immediate localities. 
English Census Report, 1891, vol. iv., p. 61. 



204 



The Bargain Theory of Wages. 



has closed, and that since the available land in the 
West has been filled up the classic advice, " Go 
West, young man," has lost much of its appropri- 
ateness. It is, however, not merely migration from 
East to West, or from State to State, that has de- 
creased. There is also less movement within the 
States and less movement from the rural portions of 
the States to the cities. The same phenomenon is 
observable, though in a less marked degree, in Eng- 
land, France, and Canada, as appears from the fol- 
lowing table, which is taken, so far as United 
States, France, and England is concerned, from an 
article by Prof. Wilcox in TJie Political Science 
Quarterly* 

PERCENTAGE OF POPULATION RESIDENT IN UNIT 
AREA OF BIRTH IN CENSUS. 



ENG. AND WALES. 


FRANCE. 


CANADA. 


UNITED STATES. 


Year. 


Unit Area. 
County. 


Year. 


Unit 
Area. 
Depart- 
ment. 


Year. 


Unit 

Area. 

Province. 


Year. 


Unit Area. 
State. 


1871 
i88r 
1891 


74.04 

75.19 
74.86 


1866 
1876 
1886 
189I 


88.4 

85.7 
84.0 
83.2 


1871 
1881 
189I 


97-5 
96.0 

95.0 


1870 

t88o 

1890 


73.8 
77.9 
79-1 



Prof. Wilcox also gives tables * of internal migra- 
tion for the two States Massachusetts and New 
York, to demonstrate that not only inter-State but 
also intra-State migration is declining. 
*Vol. X., No. 4. 



Migration Declining. 205 



PERCENTAGE OF TOTAL NATIVES OF NEW YORK 
RESIDENT IN 

1855. 1865. 1875. 

County of birth 56.0 .... 55.3 .... 57.8 

Some other county of New York 19.9 .... 17.8 .... 16.0 

Some other State 24. 2 .... 26.5 .... 26.2 

PERCENTAGE OF TOTAL NATIVES OF MASSACHU- 
SETTS RESIDENT IN 

1875. 18S5. 

Town of birth 48.61 51.00 

Some other town in Massachusetts 30.62 29.46 

Some other State 20.77 19-54 

The migration from province to province within 
the Dominion of Canada seems remarkably small, 
the reason being that the " exodus " to the United 
States, as it has been called, is, so far as the difficul- 
ties of and obstacles to movement are concerned, 
really of the nature of a migration from the rural 
parts of a country to the industrial centres. The 
Canadian figures show a slight increase in the amount 
of migration, but do not form a serious exception to 
the general tendency ; for the period covered is that 
in which the great railways have for the first time 
opened up the country. The table on p. 206 shows 
the number per thousand resident in each of the 
four original provinces of the Dominion, in the three 
census years, who were born in the various provinces 
of the Dominion. 

These are hardly the results we should have ex- 
pected. The period covered by these statistics is a 



2o6 



The Bargain Theory of Wages. 



period of railroad expansion ; great trunk lines have 
been built and parts of the countries which had been 
separated more completely than if the ocean had 
rolled between have been bound together by ties of 
intercourse and communication. The receipts from 
passenger traffic have increased year by year until it 
seems as if the whole population were continuously 
on the move. With improved means of communi- 
cation has come increased knowledge of the con- 
ditions of industry in other districts and States; but 

THE NUMBER PER THOUSAND OF NATIVE-BORN 
CANADIANS RESIDENT IN THE FOUR ORIGINAL 
PROVINCES AND MANITOBA ACCORDING TO THE 
PROVINCE OF BIRTH. 



PROVINCE OF 
RESIDENCE. 



New Brunswick •< 

\ 

Nova Scotia. . . . 



Quebec. 



Ontario , 



Manitoba. 



CENSUS 
YEAR. 



1871 



PROVINCE OF BIRTH. 



83.0 
70.0 



21. 1 

21.2 



17.0 

12. Q 



3-2 
2.1 



0.0 


0.0 


00 


0.0 


0.0 


0.0 


0.0 


0.0 


0.0 


0.0 


0.0 


0.0 




O.I 






O.I 


















O.I 




0.0 


0.0 


0.0 


0.0 


0.0 


0.0 










O.I 







A 


— _^ 



0.1 
0.6 O.I 



375-4 
459-6 



133-7 
7.2 



* Including natives of Newfoundland. 



Modern Restrictions on Mobility. 207 



migration seems to have reached a maximum just 
when it was being rendered easier. 

The result is somewhat surprising. There is 
ahnost complete freedom of movement permitted. 
The laborer is no longer hampered in his movements 
by laws of settlement, but may move wherever and 
whenever he thinks fit. In some places old mediaeval 
ideas restricting the right of migration have survived 
or been revived and enforced. The conservative 
reaction in Germany reveals itself in proposals to 
restrict the migrations of the agricultural population. 
East Prussia has been drained of a large part of its 
agricultural labor; and the organs of the great land- 
owners demand renewed restrictions on the pretext 
that so long as free migration is permitted there can 
be no adequate check to the spread of epidemics. 
The modern demands for restriction, however, come 
chiefly from the working classes. America for the 
Americans, Canada for the Canadians, London labor 
for London laborers, are cries which demand restric- 
tion of migration, in fact, if not in law. It is fre- 
quently little more than a sentiment; but in demo- 
cratic countries the sentiment is sometimes embodied 
in legislation. In Canada, there has been, in places, 
a reincarnation of mediaeval ideas regarding the 
right of movement. In Fredericton and St. John, 
N. B., and elsewhere, a tax of twenty dollars is 
levied upon imported labor. The argument is that it 
is not fair that those who reside in the city and pay 
their proper share of the taxes should be exposed 
to the competition of outsiders who may come in, 



2o8 The Bargain Theory of Wages. 



earn wages, and depart without ever being domiciled 
in the city and subject to taxation. In the spring 
of 1896, there was a dispute in St. John between 
the Ship-Laborers' Union and the managers of the 
Donaldson Line of steamers. The managers refused 
to grant the Union demand for higher wages and 
imported a trainload of men from Montreal, which 
was then icebound. After partial failure of the 
attempt to bring the "blacklegs" "out," the 
Union threatened to have the city by-law enforced. 
There was some talk of appealing to the courts 
against the by-law, which, it was claimed, was a 
violation of the British North America Act ; but no 
further steps "^ were taken, and the result was a 
victory for the Ship-Laborers' Union. f 

The growing strength of local patriotism, combined 

* Since the above was written the city by-law of St. John has been 
amended, and the tax or license fee paid by non-resident labor has been 
reduced to seven dollars and a half, or about a dollar more than a 
laborer pays for his poll tax. 

f The Contract-Labor Law in the United States is an instance of 
the same tendency, although the object of this measure is to restrict 
the right of immigration ; but the Corliss bill may be classed as a 
measure whose object was really to restrict the right of migration. 
The measure proposed to forbid any man from earning wages in the 
United States who did not reside there. It is to be hoped that the 
advocates of the measure did not base their support of it upon the ac- 
curacy of a petition in favor of it presented by citizens of the United 
States living close to the Canadian border. The petition averred that 
between two and three hundred thousand Canadians crossed the border 
every morning and, after earning the higher rate of wages in the States, 
crossed back again at night to their Canadian home — a number which 
probably exceeds the total population of Canada living within five miles 
of the border line. 



TJie Causes of Decline of Migration. 209 



with the increasing political power of the working 
classes, has, of late years, tended to reduce the vol- 
ume of migration, but hardly sufficiently to account ' 
for the diminution exhibited in the tables given 
above. The decline of migration is possibly, also, 
in part due to the increasing tendency towards locali- 
zation of industry. Where an industry is strictly 
localized, migration offers no escape from trade de- 
pression ; and, although it sometimes appears as if 
an industry were localized in more districts than one, 
yet, on examination, the industry is seen to be two 
or three different industries included under the one 
name. The localization of industry promotes the 
organization of labor in trade-unions; and we have 
seen that the trade-unions, if they do not positively 
discourage, certainly no longer encourage the migra- 
tory tendency by travelling benefits.* In one way 
the union undoubtedly does promote migration in- 
directly. The standard wage is higher in the cities 
than in the country, and the best workers seek the 
centres of population and industry; while those who 
are unable, from any cause, to earn the standard 
wage in the metropolis and find it difficult, on ac- 
count of the trade-union antipathy to a system of 
graded wages, to obtain any employment, tend to mi- 
grate to the provinces. 

Again, if it be true that a larger proportion of the 
working classes are aiming at owning their own 
houses, this would undoubtedly tend to hinder 
migration. The evidence is too fragmentary to 

* Chapter V., p. 179. 



2IO The Bargain Theory of Wages. 



allow us to decide whether they do so aim. If they 
do, we need not, as some writers and speakers, regret 
the tendency.* Mobility does not, on the whole, 
tend to promote good citizenship.- Ownership un- 
doubtedly implies greater fixity, and in so far as 
every trade, and, in a special degree, localized trades, 
are still subject to local variations, fixity of residence 
may imply fluctuations in wages and employment. 
On the other hand, when trade revives, the man on 
the spot is likely to reap the immediate benefits. A 
priori, we might conclude that mobility will secure 
an arithmetical equality of wages and employment ; 
that the wages of those who reside permanently in a 
district will fluctuate more according to the state of 
trade, and that their average will be higher than the 
average of those who move from place to place ; and 
this a priori zonzXw&xon is supported by the following 
comparison of the two classes of owner occupiers 
and tenant occupiers in respect of wages and days 
employed in the year, wliich is taken from the report 
of the Ontario Bureau of Industries for 1889. The 
comparison covers a sufficiently wide area to secure 
that accidental variations do not much influence the 
results. In 1888 returns were received from 576 
owner occupiers resident in twenty-one towns in 
different parts of the province, and in 1889, 842. 
The tenants in 1888 numbered 1272, and in 1889, 
1634. Another class is included in the first table, 
viz., boarders, but the number, forty, is too small to 

* See the reference to Bishop Fraser of Manchester, in Price's 
Industrial Peace y p. 114. 



Tenants and Owners. 211 



admit any inference. The boarders, probably, are 
found mainly in the larger towns where the average 
wage is comparatively high. 

COMPARATIVE TABLE OF EARNINGS AND DAYS EM- 
PLOYED IN THE YEAR 1889, FROM RETURNS MADE 
BY MALE WORKERS, OVER SIXTEEN, WITH DE- 
PENDENTS. 

,^,_, NUMBER OF DAYS EMPLOYED ^'^^^ EARNINGS, 

^^^^U^- RETURNS. IN YEAR. Z^^^ "^''^ 

OF DEPENDENTS. 

Owners 842 272.06 $467.67 

Tenants...... 1634 269.34 449-33 

Boarders 40 265.80 450.93 

The second table, with the accompanying diagram, 
is intended to show the local and temporary varia- 
tions of wages and time employed, of each of the 
two classes in the two years 1888 and 1889. The 
average of wages and time employed therein set 
down is the average of the two years, not of 1889 
alone, as in the first table. 

We find from the comparison (i) that for the 
tenant occupiers there are fewer fluctuations above 
or below the average either in respect of wages or 
of the number of days employed during each year: 
from which we may conclude that the greater the 
mobility of labor the stronger the tendency towards 
an arithmetical average. We find (2) that the aver- 
age wage of the owner and the average of the num- 
ber of days employed are considerably higher than 
the corresponding average for the occupier; from 
which we may justly conclude that permanence of 



212 



The Bargain Theory of Wages. 



Pi 

S g 
g9 

<^ 

>^ ^ 

^^ 

<^ ^ 

W Q 

!> Iz; CAJ 
hJ ^ 5 

t^ P^ <^ 
P W H 

fo O 5 

o » 2 

— .^ Q 

g -^ <1 

^ ^ 5 

o u 

< (^ 

I— I rl 
^Q 

S^ 
W O 
<1 '-' 

^? 

SO 

o 
o 



•ojuoiox 



•piojiBJis 



•SBiuoqx "iS 



•S9UUBqp3 "jg 



•q§nojoqja;aj 



•qi.i3j 



•BAVBJJO 



•uiiBqso 



•uopuo'^ 



•uo}s5iii;;3 



•UO^^IUIBfJ 



•qclpno 



•anbouBung 



11^0 



•[{BAVUJ03 



•Sjnqo3 



•UIBlUBqQ 



•aoB^fj uop|iB3 



•3^[iA:jjoojg; 



•pjoj)UBig; 



•3t][[AUBUIAV0a 



■SJB|{Op 

ui sSuiujBa 



56 <S o5 

IH '^ M 



O H O h 



•p3Xo][dui9 
sXbP 3§BI3AV 



00 'i^ 00 'i^ 

i-i " i-i "^ 

uT ^" tn' «" 

1^ S lu s 

« g c g 

^ (U ^ D 

O H O H 



vO vD CO 



\D \D U~i 



m -i- •^ ■* 



■<i- ■=!• -^ ■* 



CO IN en c) 



1- m CO O 
M O CO ■* 
\o to ^ -^ 



en r~ O O 



en vo O^ M 



00 00 o 



^ ^ en 



ij^ ^ •* 



CO r~~- O 00 
a^ O o) en 
Tj- tJ- in ■* 



-:^ o CO o 



IT) en en 



CO vO o 



in ■* •* ■* 



in r^ CO 
N c^ M o 



N a M M 



M w en m 



in in t^ O 

(N N W Cl 



M 00 00 w 
T)- en vD CO 
IN (N M CO 



O^ M en O 
in O in r^ 
N IN M CJ 



N W M 



M en en 



CO 1^ CO 

01 N CJ M 



W M N M 



M M C<l M 



in w in r^ 

10 00 r^ CO 

M M IN CJ 



N CO O 



M ei CO CO 






f-i 


00 








in 


in 





CO 


CO 


CO 


CO 


't 





in 


CO 


CO 


CO 


re) 


CO 


M 


CO 


CO 


CO 



CO CO en CO 



en in M CO 
0% t^ CO r^ 

CO M C4 CO 



vO r~ O CO 

CO CO CO CO 

















































































































































w 




































<M 




































\ 




































r^ 




































5:^ 




































^ 




































^ 




































< 




































cr> 




































^ 




































r\ 




































\ 




































v:) 




































\ 




































lO 




































^ 




































Nj. 




































'-«, 




































fT) 




































^ 




































CNi 




































^ 




































•^ 




































^ 




































<:b 




































^>. 




































Cb 








































































00 


1 






































































N 








































































<5 








































































^ 








































































"4 








































































c^"> 








































































<M 






















































































Ci 




































^ 




































^N 





























































> 



< 

5 



< 

■SI 



< 



< 



x 









































































c 


J 
















— — 
























— 1 








— r 




} 
















1 


















<0 
— tn 




— 'rt 


-L- 


































J 








































— 








— 






CVJ 
































x;) 




v-j 


L 






























^ 


^ 








































— 















































<?: 




'^ 


r 






























ST 


% 








































— 













^M 
^ 














_ 


















:i 




:S 


-i — 






























Q 










































— ' 















fV 
























k 




■>» ^ 


^^ 




» 


















! 




4- 












/ 

/ 












1 






























■^ 















o 




























k 


^ 






















J 




1 










/ 


> - 


/ 












T 
1 


























1 




"~ 













c\i 




























1 


2 


\' 


^* 


















• 




f 








V 


/ 


/ 














1 






























~~ 












^ 


>_— 


























/ 








Tii! 


'% 














1 




4- 






• 


/ 


/ 
















1 


L" 


































— 






-^ 


>v 
















u— 












\ 




^ 




*;i, 


























-Si 1 














yi 


K 








































CO 




























\ 


V 


-?, 




■r 


'"i, 


1 


K. 










5^ 


CO 


CO 










^ 


^ 












1 






























1 — 1 













^ 


"N. 






























\ 


■*t 


"T*^ 


1^ 


t 

1 




X 










fo 




(0 














/ 


/ 












g 








































K 
































No 




•■»jt ■* 


1 


^'^ 












Ui 




M 














/ 












^ 


fc 








































K 


^ 




































^^^ 


T\ 


j"^ ^ 












^ 

5 




•o 

5 












T 


N. 


\ 












s 










































Si 
































ti 




^2L 


M 


*y 


^^, 

¥>—■ 










k 




^ 














\ 




\ 










>i 








































V, 
































0: 


, — - 




L »;:^ 


1 


* ! 




























\ 


1 

1 


















































In 


'o 


























««: 


•— 


- 


"'^ 


^ 


^'.^ 
















i^ 




v. 


















> 










«4s 








































vj 


















-©•** 


,— < 


siV*' 






^ 


-^ 


^^ 






^Vi 














1 , 




^ 
















'"/ 


/ 










1*1 








































^ 


Vi. 








^_- 




r-*" 








r-^ 




-^ 








^^'c 


.*c^ 


















^ 




^ 












^ 


/ 


/ 












V> 








































:=^ 


\ 




^' *- 


'■ *' 


— . 


^, 


— ^ 












-- 


— 


^ 


K 




^•^1 


f-v 
















Sr 




< 

m 












\ 
















X- 








































■n^ 


fn 




















—o 


>»• 


-»- 


-., 


— •« 


»•• 




V ■ 




>^ 


^•f 












o 




K 












\ 


\ 














Q 








































fo 


"«^ 


































?• 


*^ ^ 


(^ 




f'i 


^^ 


'f-. 


























V N 


^ 












































— 1 






'^ 


OJ 


































C 


/ 


1 


"\ 








'*^^ 






















N 


s\ 


s 


















































-*v 


































s 


: — 

\ 


1 












— « 
























\ 






















































































"•\ 


1^ 




-^: 


'JbJ' 


Jr' 


V* 




























-">>— 














































. 


^^ 


^ 














~~ 




















.^ 


A 


«,•»•■< 


^•^ 


kJ 






























r-^ 


y 












































__ 


_ 






































r^-* 


:■•*• 


.*/V 




^ ** 




























^ 


/ , 


• 



































I 














_ 




^- 


-§ 






























V. 


^- 


. "-• 


i 
































\ 




^^ 


































__ 














_ 






Q\ 




















-•- 


O**** 


•^ 


►— ' 




M 


-A — 




f 


































\ 




^, 


-5V— 


















































cvj 


N 






f— 
■i — 




C 
Q 

E 








•^^ 




—=( 




^ 






■*•■•-. 

< 

■ 




- — s* 

\ 
\ 
\ 
«- 


3 

~ \ \ 
CO 


1 

1 


2^ 

.— ' 

X 

N 

XT 

(3 1 


< — 

•— 

(0 

<o — 

(0 


5^ 

— 







S* 


■ 










'00 




— X- 

k 


\ 

. \ 


1 














- — 


— 




— 


— 






— 


03 








— 


— 




— 




— 



Levelling Up. 213 

residence, which is admittedly desirable from a 
social and ethical point of view, is not an economic 
drawback. We may therefore dismiss the fears of 
many philanthropic economists and publicists that if 
the working classes own the houses they live in, they 
must necessarily be in a worse position as bargainers 
in the labor market.* 

The real cause of the diminution in the volume of 
migration, to which the social phenomena already 
mentioned are only contributory causes, is that, im- 
provement of the means of communication, which, 
at first sight, seems to facilitate, does not really en- 
courage migration. The improved means of com- 
munication have levelled wages up to such an extent 
that differences in wages are no longer, to a large 
extent, at least, accidental, but in a measure corre- 
spond with differences in efficiency and with differ- 
ences in the cost of living. The decrease in the 
volume of migration does not mean a slackening of 
competiton. The influence of competition, on the 
contrary, has outstripped the actual mobility of 
labor. As between good players the game is often 

* There is, in some places, a conviction among the working classes 
that a laborer who owns his house is at the same disadvantage as the 
laborer who is compelled to live in a house provided and owned by 
his employer, and sometimes at a worse, for a company tenant is 
generally preferred when work is scarce. In a small town the laborer 
may be practically at the mercy of an unscrupulous employer, and, 
though the cases may be few in which such an unscrupulous use of 
power is made, when such an abuse occurs a grave social crime is 
committed. Cp. on this point Report of Connecticut Labor Bureau, 
1885, pp. 84, 85. 



214 The Bargain Theory of Wages. 



decided by a show of cards, so, without recourse to 
the actual step of migration, competition has levelled 
wages up and removed the necessity of, and induce- 
ment to, migration. The knowledge that change is 
always possible has at the same time weakened the 
desire for change and the economic need of mobility. 
Mr. Gamier declares that, in England at least, what- 
ever may be the case in Scotland, the system of 
yearly hiring of agricultural laborers induces more 
men to wander from master to master at the annual 
hiring fairs than a system of weekly contracts does. 
" The weekly contracts with their cottage laborers, 
strange to say, seem to promote more settled habits. 
These latter men, feeling that they can leave if they 
choose, elect to stay." * Similarly, the knowledge 
that the Bank had power to suspend the Bank 
Charter Act, has twice allayed a panic without the 
necessity of actual suspension. Competition acts on 
the minds of men ; and the same results may be 
achieved either by actual display of power or by the 
knowledge that the power is there if need arise. 
One instance must suffice. The amount of migra- 
tion f between Ontario and Quebec is not very great, 
and, since the majority of the migrants are resident 
in a few border counties, is actually less than it 
appears, yet there has been a steady levelling up of 
the average wages earned in Quebec to the average 
earned in Ontario. If we take the average wage in 
Ontario in each of the three census years 1871, 1881, 

* Garnier, Atmals of the British Peasantry, po 415. 
\ Cp. table, p. 206, 



Migration an Economic Movement. 2 1 5 



1 89 1, as, in each case, equivalent to one hundred, 
the corresponding averages for Quebec are as fol- 
lows * : 

ONTARIO. QUEBEC. 

1871 100 73 

I881 100 83 

189I 100 90 

So, if migration is decreasing in volume, and mobil- 
ity is no longer the important wages factor it has 
been conceived to be, the result — competition — is 
still being accomplished. 

Migration arises from a more purely economic 
motive than emigration. The volume of emigrants 
from Europe is still swelled from year to year by 
those whose motives for changing are political or 
social, or, at times, even religious. The political 
motive is almost entirely absent as an incentive to 
migration, though social motives may induce many 
to seek the large cities. There can be no doubt 
that all " that makes the difference between Mile 
End fair on a Saturday night, and a dark and 
muddy country lane with no glimmer of light and 
with nothing to do," f has something to do with the 
volume of migration ; but, in the main, migration is 
an economic movement undertaken with a deliberate 
idea of bettering the material condition. There are 
elements in the movement which are not economic. 

* Census of Canada, 1891, Bulletin xviii., p. 8. 
f H. Llewellyn Smith, Booth's Life and Labor of the People vol, 
iii., p. 75 : cp. Life in Our Villages, Chapter I, 



2i6 The Bargain Theory of Wages. 



There is the drift of the tramps and the beggars and 
the characterless to the great cities where odd jobs 
and charity and oblivion may be found. The move- 
ment of women is only partly due to economic 
causes; and women form the majority of those who 
migrate.^ The general direction of the economic 
movement has been the rural districts to the cities, 
though there has also been a reverse movement 
back to the country. The volume of the migration 
from the towns to the country (not including in this 
volume the great modern movement of population 
towards the suburbs of the cities) cannot be great 
since it is a movement of the old and the successful. 
As the young and vigorous move towards the towns 
where, though the cost of living is high, wages are 
proportionately as high and seem higher: so the old, 
who have retired from active work, move to the 

* The limited number of employments open to women, and the 
localization of most of these within narrow areas, have tended to in- 
crease the volume of female migration. The excess of females in 
textile towns is not due to an exodus of the males, but to migration 
from the surrounding districts of families, the majority of the children 
in which are girls. The practice of depending in part for the family 
support on the supplemental earnings of the regular or casual work 
of the wife and children sometimes checks migration from the districts 
where there is a demand for female labor and generally promotes migra- 
tion to such a district. A laborer who counts on these supplemental 
earnings may not always follow his own individual economic advantage 
and go where there is the greatest demand for his labor ; because in 
the new locality his wife and daughters could find no employment. 
On the other hand, he may move to a district where the demand for 
his labor is less in order to find employment for a growing family of 
daughters, 



Migratio7i to Cities an Adult Alovement, 217 



country to take advantage of the lower cost of 
living. 

The movement towards the cities is an adult move- 
ment. Under modern industrial conditions the 
system of apprenticeship is breaking down and no 
substitute has yet been found. It has broken down, 
however, only in the large cities and industrial cen- 
tres. In the workshop, in the country village, the 
apprentice is still faithfully taught the whole art and 
craft of his trade ; and he learns not a special de- 
partment, but the whole trade as it could not pos- 
sibly be learned in a large city, even in shops where 
apprentices are taken. The demand for trained 
artisans in the cities is great ; and, since in the city 
workshops apprentices are no longer trained, the 
demand must be met from the outside. The move- 
ment to the cities is produced by " suction from 
within " rather than by " pressure from without." 
It is not because trade is depressed in the country 
but because the demand is so great in the town that 
the number of trained workmen migrating to the 
cities is so large. If the town were not recruited 
from the country, industry would languish and fail. 
The conditions of town life are so debilitating that 
were it not that the city population is being contin- 
uously invigorated by the infusion of fresh country 
blood the cities would soon become industrially in- 
effective. The economic debt which the cities owe 
to the rural districts is incalculable. They receive 
the flower of the industrial army. The great pro- 
portion of the migrants to the city are between the 



2 1 8 The Bargain Theory of Wages. 



ages of fifteen and thirty.* London receives such a 
number of migrants between these ages that the 
percentage of her population between these hmits is 
much higher than the corresponding percentage for 
the whole country. The migrants are, as might be 
expected, markedly successful. The poverty in the 
various districts of London is almost in an inverse 
ratio to the proportion of provincials resident in the 
district. Where the dark colors are laid down in 
Booth's map of London poverty, there is resident 
only a very small percentage of immigrants from the 
country. The reason is that the migrants are picked 
men, and in competition with city-bred labor, can 
easily secure the best positions. The percentage of 
failures amongst them is surprisingly small. 

Mr. Ravenstein has put forward a law of the move- 
ment which he calls the law of migration by stages. 
He found that, according to the English census 
returns, the amount of migration was, roughly, 
inversely as the distance of the migrants from their 
counties of birth ; and, from this fact, he drew the 
conclusion that, in spite of the great attractions of 
large cities, the set' of migration is rarely directly 
and immediately to them. The migrant seems to 
approach gradually, resting by the way to make surer 
of his footing, and, as it were, to hesitate before 

* It is significant that eighty-three per cent, of the failures occur 
among those who left their homes after reaching the age of twenty- 
five. Both for the migrant and the emigrant twenty- five seems to be 
the limit age for which success is possible. After that year the in- 
dividual seems to lose the energy and the adaptability which ar§ 
essential. 



Migration by Stages. 219 



making the plunge. Many never reach the destina- 
tion, but remain at some of the intermediate stages. 
Short-distance migration is much more frequent than 
long-distance migration. Mr. Llewellyn Smith* 
has ingeniously illustrated and supplemented Mr. 
Ravenstein's theory by dividing England and Wales 
into a series of rings of counties, in a roughly semi- 
circular arrangement round London, to show how, 
the greater the distance, the smaller the number of 
migrants to London. The results are given in the 
following table: 



AVERAGE DISTANCE 
FROM LONDON, 



NUMBER OF PERSONS PER lOOO 
OF POPULATION OF EACH 
RING LIVING IN LONDON. 

1 23.8 miles 166.0 

2 52.5 " I2I.4 

3 90.9 " 61.2 

4 126.0 " 32.0 

5 175.7 " i6.2f 

6 236.9 " 24.9 

As a further illustration of Mr. Ravenstein's law, 
Mr. Smith shows that the average age of the migrants 
from the more distant rings is higher than the aver- 
age age of those wljo come from the home counties. 
If long-distance migration takes place by stages it is 
obvious that the age of the long-distance migrant 
will be somewhat above the average age of the 
migrants when he reaches London. 

* Booth, op. cit., vol. iii., p. 67 ; see also ibid., p. 126. 
f The figures here show the disturbing influence of the attraction 
of the manufacturing centres of Lancashire and Yorkshire. 



220 The Bargain Theory of Wages. 



j^j PERCENTAGE OF MIGRANTS DITTO OVER 

UNDER TWENTY. TWENTY. DISTANCE. 

I 22.4 77.6 23.8 

2 18. 1 81.9 52.5 

3 16.8 83.2 90.9 

4 15-4 84.6 126.0 

5 191 80.9* 175-9 

6 15.9 84.1 236.9 

The law of migration by stages must be slightly 
modified to take account of facilities of access and 
travel. There is a larger proportional movement 
from Scotland to London than from Scotland to 
Birmingham or Leeds. London seems much nearer 
than Birmingham and its attraction is much more 
actual. In general, where there is communication 
by water there will be a relatively greater migration. f 

The exodus from the Maritime provinces of Canada 
has most of the characteristics of a migration. The 
emigrants go to a country where their own language 
is spoken and the same customs are observed ; and 
the direction of the movement is towards the large 
cities. In this case the law of migration by stages 
is again partially set aside on account of facilities of 
access. The migration is not to the State of Maine, 

* The figures here show the disturbing influence of the attraction 
of the manufacturing centres of Lancashire and Yorkshire. 

•(•The greater proportion {i. e., of migrants to London), consider- 
ing distance, is that shown by Devonshire, Somerset, Dorset, and 
Cornwall, which collectively send 24.7 per cent, of their migrants 
into London. Here the geographical situation, giving, practically, 
only one degree of freedom of movement to the migrant, is doubtless 
a great operative cause. In general, it will be found that a dispropor- 
tionate amount of migration takes place to London from counties 
with a seaboard. Booth, op. cit., vol. iii., p. 72. 



Distribution of Canadian Iinmigrants. 22 1 



which geographically lies nearest to the Maritime 

provinces, but to the State of Massachusetts. In 

the State of Maine are found 52,076 Canadians; in 

the State of Massachusetts 207,601. 

The distribution of Canadians in the United States 

is as follows : 

North Atlantic division 490,229 

South Atlantic division 5,412 

North Central division 401,660 

South Central division 8,153 

Western division 75,484 

United States 980,938 

The migration to three of those divisions is too 
small to be governed by any discoverable law except 
the law of health-seeking. Fully one fifth of the 
Canadians in the South Atlantic division are resident 
in Florida; and more than a third of those resident 
in the South Central division have sought Texas to 
prolong their days. In the Western division 26,028 
have fled to California from the rigors of the Cana- 
dian winter. The details of the other two divisions, 
according to States, give rather contradictory re- 
sults. The attraction to the North Atlantic division 
is towards the industrial and manufacturing States, 
which are as different as possible from the Maritime 
provinces of New Brunswick, Nova Scotia, and 
Prince Edward Island. New York and Massachu- 
setts together absorb three fifths of the total migra- 
tion. In the North Central division, on the other 
hand, the attraction is mainly, if we except Illinois, 
in which is Chicago, and Ohio, to States where the 
main employment is in agriculture or lumbering; 



222 The Bargain Theory of Wages. 



and ill neither case do the nearest States to the Cana- 
dian centres of population absorb anything like the 
share they should, if the law of migration by stages 
were unconditionally true. Michigan, it is true, is 
immediately contiguous at one point with the prov- 
ince of Ontario; but 30,466, out of a total 181,416 
Canadians, have travelled across the breadth of On- 
tario from Quebec to reach the lumber woods of 
Michigan. The fact, however, that Ohio absorbs 
more than three times as many Canadians as Indi- 
ana ; that Wisconsin has twice as many, and Minne- 
sota two and one half times as many as Iowa; that 
North Dakota has two and one half times as many 
as South Dakota, and as many as Nebraska and 
Kansas taken together; while, in the Western divi- 
sion, in spite of equal facilities of access by sea from 
British Columbia, Washington has attracted three 
times as many as Oregon, which lies directly to the 
south of it, seems to give some support to Mr. 
Ravenstein's law. 

NORTH ATLANTIC DIVISION. NORTH CENTRAL DIVISION. 

Maine 52,076 Ohio 16,575 

New Hampshire 46,321 Indiana 4,954 

Vermont 25,004 Illinois 39,525 

Massachusetts 207,601 Michigan 181,416 

Rhode Island 27,934 Wisconsin 33,163 

Connecticut 21,231 Minnesota 43, 580 

New York 93,^93 Iowa 17,465 

New Jersey 4,698 Missouri 8,525 

Pennsylvania 12,171 North Dakota 23,045 

South Dakota 9,493 

Total 490,229 Nebraska 12,105 

Kansas 11,874 

Total 401,660 



Temporary Migration. 223 



In addition to the migration already discussed, 
there is a kind which does not appear in the census 
tables; because the migrant does not seek a domi- 
cile in the district into which he moves. His sojourn 
there is for the season ; and, at the end of the season, 
he returns to his old home. This kind of migration 
represents the maximum of economic mobility. The 
individual sometimes travels very far afield in search 
of employment. Some trades are subject to periodi- 
cal migrations and labor circulates freely between 
difTerent parts of the country. The seasons in which 
trade is brisk are sometimes different in different 
parts of the country. There is, for instance, a cir- 
culation of boot- and shoemakers between London 
and provincial towns such as Leicester and Norwich ; 
there being, at the same time, a fairly steady move- 
ment of labor in various parts of England following 
the transfer of industry away from the sphere of 
trade-union influence. It is but seldom, however, 
that the seasonal variations of industry lead to con- 
siderable migration, except in the case of agriculture 
and trades dependent on the seasons. The Irish 
harvesters who come in large numbers across the 
Channel to meet the increased demand for agricul- 
tural labor at harvest time may be taken as a typical 
instance. In 1890, according to the annual return 
of the Registrar-General for Ireland, in the month 
of June, 14,081 persons left their homes to seek 
employment as agricultural laborers elsewhere. Of 
these seasonal migrants 84.4 per cent, sought work 
in England, 12.2 per cent, in Scotland, and 4.4 per 



224 The Bargain Theory of Wages. 



cent, in Ireland, mainly in Leinster, in the counties 
around Dublin. The migrants form a fairly large 
percentage of the total male adult population, 
amounting in County Mayo to 15.3 of the total 
adult male population of the county. The same 
migratory tendency during harvest season is observ- 
able in Germany, where there is a movement of 
agricultural laborers out of, and into, the eastern 
provinces of the kingdom of Prussia. In 1892, 
96,894 laborers left the four eastern provinces. East 
■Prussia, West Prussia, Silesia, and Posen, and moved 
westward in search of work, to return to their homes 
at the end of the season- while in the same year 
nearly twenty thousand immigrants from Russia and 
Galicia sought temporary employment in these four 
provinces. From some countries, the volume of 
temporary emigration is almost as large as the vol- 
ume of the real and permanent. In 1892, from 
Italy, 107,025 emigrated in search of work, for the 
most part, in the spring of the year, to various 
European countries, chiefly to France, Austria, 
Switzerland, and Germany. The majority of the mi- 
grants naturally come from the frontier provinces, 
and in the case of Udine and Belluno, more than 
seven per cent, of the whole population seek work 
in other European countries every year.* There is a 
similar movement across the Canadian frontier into 
the United States. The seasonal industry of lum- 
bering, which can be followed in the winter only, 

* Mayo-Smith, Statistics and Sociology, pp. 318, 330; cf. Bren- 
\.'SiXio'% Hours, Wages, and Production, pp. 41, 42. 



Temporary Migration. 225 



causes an annual migration from the cultivated por- 
tions of the country to the woods and in the spring 
back again. When the lumberman does not follow 
the alternate trades of farming and lumbering, he 
has his summer at his own disposal. Too often, 
though not so often as in former years, the summer 
is spent in loafing; but, of late, with the improved 
means of communication and increased knowledge 
of industrial opportunities, there has sprung up a 
habit of sojourning in the United States during the 
summer, where employment is obtained mainly as 
bricklayers and bricklayers' laborers. The seasons fit 
into each other. The frost and snow which throw the 
bricklayers out of employment render possible the 
work in the woods. It is perhaps commoner for the 
summer to be spent in Canada on the farm, and the 
winter in the New England mills and factories; and 
a great part of objection raised to Canadian labor is 
due to this practice of the French Canadian. 

The Canadian and United States trade-unions 
make common cause against the trans-Atlantic mi- 
grant who crosses to work in Montreal and New York 
during the season and returns for the winter to Scot- 
land and England, where, in the milder climate, work 
can generally be carried on throughout the winter. 
Masons and bricklayers are said to be the chief 
offenders; but, in spite of cheap fares and quick 
transit, the competition of such migrants cannot be 
very serious. It is alleged in Canada that these men 
come in at the opening of the year, and not having 
to face the rigors and the lack of employment char- 



226 The Bargain Theory of Wages. 



acteristic of the Canadian winter, can afford to work 
for lower wages than the Canadian workman. In 
Canada work is scarce in winter, and generally paid 
at a lower rate; and in many trades is impossible. 
Consequently, an artisan must make up by the higher 
wages in the summer for the slack times and higher 
cost of living in the winter. 

It is hardly necessary to take advantage of human 
weakness before numbers running into millions, to 
have the importance of emigration recognized. With 
whatever deductions the figures require to be taken, 
on account of the impossibility of forming an esti- 
mate of the net or real emigration, there is no deny- 
ing the importance of the movement they exhibit. 
Less striking, perhaps, but no less profound in its 
consequences, and, in reality, no less imposing in its 
silent magnitude than the barbarian invasions which 
overthrew the Roman Empire, the tide of emigra- 
tion has set steadily from the old world to the new 
for nearly a hundred years, and shows no signs of 
diminishing in force. Since the beginning of the 
century, in every year, hundreds of thousands of the 
strength and manhood of every State in Europe 
have abjured the old allegiance, have broken the old 
ties and the old associations and set themselves reso- 
lutely to new conditions in a distant part of the 
world. Many have gone among strangers, who were 
yet kinsfolk, speaking the same language and in- 
heriting the same political traditions; but to the 
great majority emigration has meant the profound 
change of home and language and customs. The 



Loss a) id Gain. 227 



results of this movement are incalculable. New 
continents have been opened up, that larger popula- 
tions might be supported at home ; new markets 
have been established, that industry might be more 
economically conducted ; new wealth has been cre- 
ated ; new resources developed ; new nations called 
into being. 

The nations of the old world have given of their 
abundance that the nations of the new might be 
built up ; but we cannot estimate the greatness or 
the value of the gift by the rough-and-ready method 
of regarding every emigrant as an irretrievable loss 
and every immigrant as a great gain. The popula- 
tion of the British Isles would not have been in ex- 
cess of fifty millions if the fifteen millions who have 
left her shores had remained within her sea-girt 
borders. It would have been no larger than it is at 
present, and it is possible it might have been a 
great deal less. Whatever may be the case un- 
der more ideal conditions of land tenure (and Dr. 
Geffchen * shows that emigration from the various 
provinces of Germany bears a distinctly inverse rela- 
tion to the average size of the holding), at present 
the British Isles could not produce food for thirty- 
eight millions without serious economic loss and in- 
dustrial derangement. A much larger proportion of 

* Schonberg's Handbuch, ii., Auf. iii., p. 1063. Die Ursachen 
liegen teils in der Ertragbfahigkeit des Bodens, noch mehr aber in 
dessen Verteilung ; Ostpreussen ist durchschnittlich nicht sehr frucht- 
bar und hat doch wenig Auswanderung, Mechlenburg ist fruchtbar 
und hat stari<e Auswanderung, in erstereni ist mehr Bodenverteilung, 
in letzterem herrschen die Latifundien, 



228 Tlic Bargain Theory of Wages. 



the population would require to devote itself to the 
production of food, and England's economic position 
as an industrial and manufacturing nation could not 
be maintained. Her extreme industrial specializa- 
tion has been possible because the opening up and 
settling of virgin continents have given her a cheaper 
supply of food than she could have obtained from 
her own soil ; and have, at the same time, widened 
the market for the products of her mills and fac- 
tories. The area of the world's market has been 
extended by the movement ; and productive capacity 
has been increased to a proportional extent. The 
emigrants departed only to make room for a corre- 
sponding number of workers. As we saw in Chapter 
v., a large number of the emigrants have risen at 
least nominally in the ranks of labor ; and, so far as 
this rise from the ranks of the unskilled has been 
real, there has been a great gain to the productive 
capabilities of the world. The great volume of emi- 
gration has permitted a more economical use of the 
world's resources; and to this extent emigration has 
been fruitful of gain. It cannot be said that the 
gain has been distributed in proportion to the con- 
tributions made. The emigrants themselves in the 
new country have naturally engrossed a greater part 
of it; but what of gain there has been for the coun- 
tries of origin has not been distributed according 
to the contributions made to the volume of emi- 
gration. Nations have shared in it which have 
contributed nothing. The trade of France with 
the United States has grown during the last sev- 



Measure of Loss and Gain. 229 



enty years as steadily as the trade of Germany : 
yet France has sent none of her children beyond 
the seas, while Germany has given more than six 
millions. The exports of the United Kingdom to 
the United States have risen from rather less than 
four millions sterling in 1820 to more than thirty- 
two millions in 1890; and the increase does not 
seem to be as great as might be expected in return 
for a contribution of eight or nine millions of people ; 
especially, when we remember that the total British 
export trade has increased, in the same period, in 
almost the same ratio, from thirty-six millions to 
two hundred and sixty-three. We cannot say how 
great an increased resultant of trade we might have 
looked for; and, consequently, we have no means 
of measuring absolutely the loss and gain by emigra- 
tion. France has undoubtedly gained because she 
has in the beginning lost little, and her gains are 
therefore net gains. Germany has lost as much 
as any nation because all her citizens have emigrated 
to foreign countries. The United Kingdom has not 
lost so much proportionally ; because, though the 
great majority of her emigrants have gone to coun- 
tries independent of their native land, a certain pro- 
portion have settled in the British colonies and have 
maintained closer ties with the mother country than 
have those who settled in the United States. This 
gives us one relative means of estimating the loss 
and gain of emigration. Each colonist buys British 
produce to the amount of one hundred and sixty- 
eight shillings, while the emigrant to the United 



230 The Bargam Theory of Wages. 



States buys only forty-seven shillings' worth — a 
difference of one hundred and twenty-one shillings 
per head. We need not attempt to determine how- 
far trade follows the flag; but it is obvious that if 
the eight or nine millions who have left the British 
Isles for the United States had gone to the British 
colonies, British export trade would have been larger 
by thirty or forty millions per annum, or, making 
allowance for an earlier and completer industrial de- 
velopment of the colonies consequent upon the larger 
emigration, by at least twenty millions. Even to 
the colonies Englishmen go out, as the Corcyrans 
did of old, " on a footing of equality with, not of 
slavery to, those that remained behind," and since 
the colonial trade was freed from all preferences to 
English goods, we have no guarantee that, as colo- 
nists, they buy all that a corresponding number at 
home would have bought. It is only a relative 
means of estimating the loss by emigration. J. S. 
Mill declares that " there needs be no hesitation in 
affirming that colonization, in the present state of 
the world, is the best affair of business in which the 
capital of an old and wealthy country can engage " * ; 
but the main result of emigration, at any rate, for 
most European nations seems to be the creation and 
fostering of industrial and commercial rivals. Ger- 
many has all along suffered more or less from the 
competition of the United States as a food producer 
and as a competitor for the English market. Eng- 
lish agricultural interests have likewise suffered ; 
and we seem to be at the beginning of a period of 
* Principles of Political Economy {^o^. ed.), p. 586. 



The Gain to the Receiving Country. 



231 



industrial competition between England and the 
United States. As Adam Smith says, in another 
connection, "the inconveniences" of emigration 
" every country has engrossed to itself completely. 
The advantages ... it has been obliged to 
share with many other countries." * 

On the other hand the addition to the population 
in the receiving countries cannot be regarded as pure 
gain. The population of the United States has 
during the emigration period been augmented by 
fifteen millions of immigrants; but the rate of in- 
crease of the population has remained stationary 
during the period or actually fallen. It may seem 
too much to say that the population of the United 
States would have been as large as, or larger than, 
it is to-day, had there been no immigration ; but it 
is undoubtedly true that immigration has checked 
what would otherwise have been the natural rate of 
increase. The fact is clearly brought out in the 
following- table : 











PERCENTAGE OF INCREASE IN 




POPULATION. 


INCREASE 
IN DECADE. 


IMMIGRA- 
TION IN 
DECADE. 




DECADE. 




















Total. 


By Immi- 
gration. 


Natural. 


1840 


17,069,453 


4,203,433 


599,125 


32.67 


4.66 


28.01 


1850 


23,191,876 


6,122,423 


1,713,251 


35.87 


10.04 


25.83 


i860 


31,443,321 


8,251,445 


2,579,580 


35.58 


II. 12 


24.46 


1870 


38,558,371 


7,115,050 


2,278,425 


22.63 


7.25 


15.38 


1880 


50,155,783 


11,597,412 


2,812,191 


30.08 


7.29 


22.79 


1890 


62,622,250 


12,466,467 


5,246,613 


24.86 


10.46 


14.40 



♦ Wealth of Nations (Nicholson's ed.), p. 260, 



TJic Bargain Theory of Wages. 



Moreover, the countries of Europe have not always 
completed their contributions. They may give the 
labor; but without the opportunities for employing 
the labor the gift may be a burden; and the oppor- 
tunities are limited by the wealth and capital of the 
country. In the United States, in 1S90, the average 
amount of wealth per inhabitant exceeded one thou- 
sand dollars; and the average amount of w^ealth 
brought in by the immigrant certainly does not 
amount to one hundred dollars. We may not ac- 
cept in its full extent the proposition that indus- 
try is limited by capital ; and yet we must admit 
that in modern industry capital is indispensable. In 
1890 the capital invested in the United States in 
mechanical and manufacturing industries alone 
amounted to $6,525,156,486, or rather more than 
one hundred dollars per head of the population, or 
$1384 per employee. To the fund of capital the 
immigrant can add little or nothing; and, conse- 
quently, to the degree in which the Wages-Fund 
Theory is true, immigration may prove a hardship to 
the receiving nation. 

These, however, are only general considerations 
which might help us to decide whether emigration 
and immigration is a loss or gain ; but they afford 
no means of estimating how much the gain or the 
loss actually is. Various methods * have been em- 
ployed to obtain an approximate measure of the 
amount. The one generally employed consists in 

* For a full discussion of these methods see Mayo-Smith, Emigra- 
tion^ c, 6, 



TJie Gain not to be Accurately Measured. 233 



forming some rough estimate of the cost of rearing 
and training a child till he arrives at industrial years, 
and then taking this amount as the measure of the 
loss to the country of origin and the gain to the 
country which receives him. To this amount is 
generally added the average amount of money in 
the shape of gold or drafts which the immigrant 
brings with him. Another and more elaborate 
method estimates the laborer's chances of life, 
according to the accepted standards, and then, after 
deducting from his total earnings, during the period 
he has still to live, the cost of maintaining him 
during that period, regards the surplus as the loss 
by each emigrant and the gain by each immigrant. 
These calculations and results are exceedingly inter- 
esting, and throw some light on the question of the 
balance of trade between nations, but do not go far 
to give us an accurate measure of loss and gain by 
emigration and immigration. They err in attempt- 
ing to measure accurately what cannot be accurately 
measured ; and are also open to the serious objection 
that they suppose labor to have some definite pre- 
determined value apart from the opportunities it may 
be afforded of creating wealth. That it is a loss to a 
nation, however, to train up its children to manhood 
and then have to begin the process anew, when the 
strength and manhood of the nation seek a career 
in a foreign land, is a fact which cannot be disputed. 
The world, as a whole, may be a gainer by the pro- 
cess, but to the individual country of origin the pro- 
cess is not only a loss, but a disheartening loss. The 



234 The Bargain Theory of Wages. 



majority of the emigrants,* more than sixty per cent, 
of them, are adult males in the prime of their physi- 
cal strength, and the drain is on the effective indus- 
trial population of a nation. 

The grand totals of emigration and immigration 
have led many to adopt, somewhat unnecessarily, 
an alarmist tone. There is no country in danger of 
being depopulated on account of emigration and no 
country where the quantity rather than the quality 
affords real cause for alarm. Here and there there 
may be districts from which immigration has taken 
away all the energy and left nothing but stagnation 
and depression behind. In the Maritime provinces 
of Canada there are districts which have suffered 
very severely, more severely than the aggregates of 
the census reports at first indicate ; but there, as 
elsewhere, over a large area, emigration can do little 
more than keep the population stationary and seldom 
carries out anything like the natural excess of births 
over deaths. As the volume of immigration is seldom 
distributed equally over tlie whole area of the receiv- 
ing country, so it is rarely ever drawn in equal pro- 
portions from the districts of the country of origin. 
Particular districts may experience an actual decrease 
in population, but, as the following table, taken 
partly from Schonberg's Handbiicli, and partly from 
Mayo-Smith's Statistics and Sociology, shows, there 
is little danger of a country being depopulated : 

* See Fawcett's Political Economy, p. 602 (sixth ed). 



Natural Increase of Population. 



235 



COUNTRY. 



United Kingdom 

Germany 

Italy 

France 

Switzerland 

Sweden 

Norway 

Denmark 



EXCESS OF BIRTHS OVER 

DEATHS PER looo 

INHABITANTS. 



1885. 



12.3 

2.3 

6.4 

II. 8 

14.9 

II. 7 



II 



9.8 
I . I 

7.8 

13-8 
13-4 



1892. 



10.54 

17.6 

10.14 

0.5 

8.7 

9.1 

II. 9 

10. 1 



EMIGRATION PER lOOO IN- 
HABITANTS TO COUNTRIES 
OUTSIDE EUROPE. 



5-7 

2.2 

2-7 
O. I 

2.3 
4.0 
7.2 

2.1 



7-5 
2.0 
6.8 
0.6 

2.8 

9-7 

II .2 

4.0 



1892. 



5-51 
2.23 

3-53 
o. 14 
2.64 

6.87 

8.53 
4.76 



From this table it is apparent that emigration is 
greatest in proportion from those countries where 
the natural excess of births over deaths is highest, 
and where the population increases but slowly, the 
volume of emigration is least. From France, from 
which there is practically no emigration, the excess 
of births over deaths is barely sufficient to keep the 
population stationary. The Maritime provinces of 
Canada present the somewhat unusual phenomenon 
of a large excess of births over deaths and a station- 
ary population ; and the phenomenon is accounted 
for by emigration to the United States. Unfortu- 
nately, no systematic records of the movements of 
population are kept; and, since 1885, the United 
States has ceased even to pretend to keep account 
of the immigration from British North America. In 
the census year 1891 the excess of births over deaths 
was for New Brunswick, 14.34 per thousand; for 
Prince Edward, 13. 19 per thousand ; for Nova Scotia, 



236 The Bargain Theory of Wages. 



10.84 per thousand. This large excess is removed 
by emigration ; for the population of Nova Scotia 
increased in the decade 1881-91 only 2.23 percent. ; 
Prince Edward Island increased .17; and the popu- 
lation of New Brunswick has remained absolutely 
stationary. 

The forces which have led to emigration have 
changed from generation to generation; but the 
only really efficient cause has been the economic. 
It is true that the economic motive began to operate 
only from the beginning of the present century. 
Early emigration was due to political or religious 
causes ; but the volume of emigration never swelled 
to any dimensions till the economic motive began 
to operate. 

In 1751? when the population of the American 
colonies, according to Bancroft, was more than 
eleven hundred thousand, Benjamin Franklin * esti- 
mated that the number of emigrants from whom 
this population was descended, did not amount to 
more than eighty thousand, of whom twenty thou- 
sand had arrived before 1640. Practically, we may 
say, that emigration from Europe did not begin till 
after the downfall of Napoleon had released Europe 
from the fears of immediate war and permitted the 
governments of Europe to slacken their hold upon 
their subjects. From 1820, the movement of the 
nations begins. Men sought no longer an Eldorado 
where even the poorest might grow rich without 
effort, or a retreat where they might worship God 

* Works, vol. ii., p. 319. 



Emigration an Economic Movement. 237 



according to the dictates of conscience ; but a land 
of opportunity. The political motive has not been 
entirely absent during the present century, though 
it has usually been an economic motive under a 
political guise. The excessive drain from Italy 
during the last decade is unmistakably due to the 
tremendous and increasing burden of taxation. The 
desire to escape the blood tax of compulsory military 
service has swelled the volume of emigration from 
Germany. Even in 1872 and 1873, when the con- 
ditions of the laboring classes were " fast ungesund 
giinstige," * more than ten thousand injunctions 
were, each year, taken out against intending emi- 
grants on the ground that they had not served in 
the army; and as the burdens of militarism are in- 
creased, and grounds in mercy for exemption are re- 
stricted, larger numbers will annually seek to escape 
from the burden which already presses with crush- 
ing weight upon the manhood of Europe. The 
desire to escape from the burden of taxation is, 
however, only an economic motive slightly disguised. 
Pure political motives operate rather to restrict than 
to increase the volume, although the hereditary hate 
of the Irish for England still sustains a movement 
of which bad agrarian conditions have been the chief 
cause. 

When we examine the statistics of emigration and 
immigration we discover that there have been cycles 
in the movement which correspond in a certain 
measure with the cycles in industry and commerce. 

* Schonberg's Handbuch, ii., p. 1063. 



238 The Bargain Theory of Wages. 



The fluctuation in the volume of emigration is obvi- 
ously an effect of the variations of industry ; but the 
way in which the state of industry reacts on the 
volume of emigration is not very clear. There has 
been a good deal of discussion on the point whether 
emigration increases because of good times or of 
bad times. It is argued, on the one hand, though 
somewhat a priori, that the volume of emigration 
will be largest when industry is in the most flourish- 
ing condition, because only at such times are the 
working classes able to meet the necessary expenses. 
Prince Bismarck argued, in the Reichstag, on June 
8, 1885, that emigration increased during periods of 
prosperity, and even went so far as to take the posi- 
tion, from which he afterwards receded somewhat, 
that it was the only cause of the increase. Emigra- 
tion, however, as Dr. Geffchen * argues conclusively 
to the contrary, is not greatest from the most pros- 
perous districts of Germany, but from the least pros- 
perous. On the other hand, it is argued equally a 
priori that men leave their native country only 
under pressure of bad times. But those who are 
out of work have not the means; and, as a rule, 
those who have the means are not in a mood to 
make so great an experiment. The following com- 
parative table of out-of-work and emigration statis- 
tics shows what relation has actually held in England 
between emigration and the state of trade. The 
out-of-work returns are taken from Mr. Burnett's 
Board of Trade Report. 

* Schonberg's Handbuch, ii., p. 1060. 



The Causes of Emigration. 239 



PERCENTAGE 


NET EMIGRATION OF 


PERCENTAGE OF 


OUT OF 


BRITISH AND IRISH 


EMIGRATION 


WORK. 


SUBJECTS. 


TO POPULATION 



YEAR. 

886 lo.i 152,882 0.41 

887 8.6 196,012 0.53 

888 4.4 185,795 0-50 

889 1.8 150,725 0.40 

890 2.6 108,646 0.29 

891 4.45 115,470 0.30 

892 7.33 112,262 0.29 

893 7.9 106,695 0.27 

894 7.0 37,721 0.09 

895 5-8 75,763 0.19 

These figures prove nothing very conclusively re- 
garding the cause of emigration. The volume of 
emigration is practically equal in the best year and 
the worst year, in 1889 and in 1886. The volume 
of emigration is greatest when the state of trade is 
neither very good nor very bad. The period taken 
for comparison is too short to justify any sweeping 
conclusion. If any conclusion at all is justified, it 
is that the years of reviving trade after a period of 
depression are marked by an increase of emigration. 
The memories of bad times have not yet faded, and 
the first use many seem to make of more regular 
work and higher wages is to scrape together enough 
to leave the country. 

When we turn to the figures of immigration into 
the United States, we find that the volume of migra- 
tion has fluctuated to a very large extent, and that 
it has perfectly definite maxima and minima which 
correspond with the course of trade and industry. 
When we look closely into the fluctuations, we see 
them coincide very nearly with the changes in the 



240 The Bargain Theory of Wages. 



prosperity of the country which receives the immi- 
grant : the concomitant variation proves that the 
connection between immigration and prosperity is 
very close, but whether the connection is of cause or 
of effect or of mutual determination does not clearly 
appear. I have compared in the following diagrarn 
the fluctuations in trade and in immigration, and with 
that purpose have selected as the best index of the 
relative prosperity of a new country like the United 
States the number of new miles of railroad opened 
each year since 1845. This is only one indication 
out of many, and might easily be supplemented by 
others, such as the earnings of the railroads, the 
bankruptcies in each year, the total exports and im- 
ports, the exports and imports of bullion ; but the 
index selected is perhaps as clear as any other, and, 
in the case of the United States, which down to the 
last decade was still in process of expansion, is prob- 
ably better adapted to show the fluctuations which 
have taken place in the business of the community. 
While there are still large areas to be opened up, 
advancing prosperity will always be marked by 
schemes for new railways : when trade is depressed 
and new enterprises are avoided fewer miles will be 
constructed. In the diagram the number of immi- 
grants is shown in the left margin in thousands (fifty 
thousand to the half-inch); and the number of new 
miles of railroad constructed each year is shown in 
the right margin (one thousand to the half-inch). 
An examination of the diagram will give a clearer 
idea of the correspondence than many tables of 



o o o o O o 2 
o o o o o o o 

Cj O Q O O O O 
»^. VO «o •*• <n CM "^ 








-►.^ - '^ 


- _ ^•:« ^_ _ - _ . .^^ .- _ (^ 




•"•••■''..'.. _^i-^'3 J'' '■„.._ "^ 


:: : i:::^:::":::^?:::,^:::: : 






— ^ ^-''' K^ ,''^ 


-^" — " "'--^" 3- 


M' - 1 - 1 NjinTn^^ J rH- p 






: ..,«^'' i ^^ : "^ - 


4" { ^ ■ 




••■..•^TTn^^^ta^ '•'J^ttii"*- *:£ - -T ^ 




---"-S "^"XxVi 






~ ~ j;-*'^ ■■■■■ .A^^^-'zL--^^ •'«' 


^^L^l-:-___^_^_ — ==,^^?^^ — p 




»'*'*"*"■ 'I *^ \ 7 






^^ """~*!.^ *:' 


■ i^-H^ ^- "«" 




' '••'••, / "'"*'*--''Z *o 


' « ( ' "v S . "** 


' " • • ' « ft jp^ »- *. \ ^h 


I ^.^ *l 


,»«• '• *'L,--a^*^'' 


' -» tp^^ ■% w 


!.•-■ "n ^» : ^ V 


1 4UH'4****x<Tl44TW''i*PHn 1 


:-.._,_^^:^sg._^::: :;o 




* ' ' • ' '-J **^ ♦? -"^ — *^ *" "^ 


• I] V- ^ s 


•' ^ — ►"-*"— — " — *^''*"'-'<l 


• *■ *- ^ K- ~ — • — . _ ^5* 


'^•••••L 5 "^ ^* 


'*•••»_, "^""-n^ ■""—--> ^--^ 


"^s. S jr X 


"**"*••'•• ' ^~"^— it~-^ S ifi 


• • , , "xJ "' "^ - \ ^i* 


" "" " " :!!i:^^?^^5^ "o 




■ ►••'-!!-- *>^ '^k'' 


• ,, *>-v^ kj fie 


■ j7^ Jn ~i^ 


"*"* ■. ' ""s- '^^, 


^* • "^E^ 


-•t * ' h.'-f^Y 






. „ . * ^ * K ■" CO 




, ^ * 


' * ' • • s^ 


U 


1 r "^ 


,' 




: ± •^'•o 


X - -- _L -_ ■ N 


i • **> 


• -^ 






X _____ __ _ V 


350000 
300000 
250000 
ZOOOOO 
150000 
100000 
50000 




Q 
I— I 

o 

o 

t— t 

H 
t— I 

Q 

"^ 

O 

Q 



o 

I— ( 

o 

I— I 

% 

I— I 

o 



CO 



<! 

o 

<! 



o 

CO 



o ° 

H oo 







o 


o 


o 


o 


o 


o 


o o 


o 


o 


o 


o 


o 


o 


o 


o 


o 


o 


o 


o 


o 


o 


o 


o 


o 


o 


o 


o 


o 


•o 


o 


v> 


o 


>o 


o 


•o 


<r> 


00 


«\i 


<\J 


^^ 


^* 





The Diagram. 241 



figures. The comparison has only been carried back 
to 1845, on account of the necessities of the scale 
and of clearness. The diagram also exhibits an 
analysis of the main curve of immigration into its 
chief constituent elements, the German and the 
British, which latter again is analyzed in the curve 
of Irish immigration. The intention at first was to 
trace on the same diagram the fluctuations of Ger- 
man and British trade and industry ; but the remark- 
able and unexpected closeness of the correspondence 
between the prosperity of the United States and the 
volume of immigration has rendered this unneces- 
sary. The maxima and minima of the two curves 
practically coincide. The only variation of any im- 
portance occurred between 1845 ^^"^ 1850, when the 
volume . of immigration was large from the effect of 
the Irish famine. There are two explanations of 
this remarkable concomitant variation — one that the 
immigration is the cause of the expansion of trade 
and industry, the other that it is the effect of such 
expansion. The former is not often put forward as 
an explanation, and in this instance may be set aside, 
because the maxima and minima of trade and in- 
dustry as indicated by the railroad expansion occur 
one or two years earlier than the corresponding 
maxima and minima of immigration. The increase 
or decrease in the amount of immigration is thus 
governed by the state of trade in the United States. 
Mr. Llewellyn Smith uses a phrase to describe the 
cause of migration from the provinces to London 
which we may adopt as an explanation of the 

x6 



242 The Bargain Theory of Wages. 



amount of immigration. It is, he says, due not to 
pressure from without but to suction from within. 
The expansion of trade and industry creates a de- 
mand for labor (and for labor of such a kind) as can 
best be supplied from the outside. Immigrants come 
in response to the invitation of industry and come 
to do work, as we shall see later, which the native 
American is unwilling to do. The state of the 
country of origin has little to do with determining 
the volume of emigration. Commercial depressions 
are experienced at the same time in the United King- 
dom and in America, and emigration offers small 
chance of escape. From Italy and the southern 
countries of Europe the volume of emigration is 
almost entirely determined by the state of trade in 
the United States. A large proportion of these 
immigrants are assisted by remittances from the 
friends who have preceded them to America; and 
the amount of such remittances naturally decreases 
when trade is bad in America, Germany occupies 
the middle position. It is not so readily subject to 
commercial depressions and on the other hand 
German emigrants are not so dependent as Italians 
on remittances from America. We should expect, 
therefore, that the variations in the volume of Ger- 
man emigration would correspond less closely with 
the changes in industry in the United States; and 
this result is discernible. There was a large increase 
after 1853 in consequence of the bad times and 
scarcity in Germany ; but since then the two curves 
have moved together. 



TJie Industrial Quality of the Emigrants. 243 



The comparative table of excess of births over 
deaths and of emigration on page 235, disposed of 
the alarmist idea that continued emigration would 
result in depopulation. The fear that the industrial 
capacity of a nation may be fatally weakened will 
also give way if we consider the industrial character 
of the emigrants. No nation is really giving of its 
best. It gives at the most only a certain proportion 
of its unskilled labor and sends out but few of its 
artisans and factory hands to carry to new lands the 
secrets of traditional skill. In 1891, according to 
the gross estimate, 189,756 adults of British origin of 
whom 112,256 were males, left the United King- 
dom. The adult males were classified according to 
occupation as follows: 

Agricultural laborers 14,797 

Unskilled laborers and miners 36,251 

Occupation not stated 26,663 

Mechanics and skilled laborers 9, 7^7 

Farmers and graziers 3,704 

Clerks and shopkeepers 4,773 

Professional men 1 1 ,467 

Miscellaneous 4,614 

So that if we include among the unskilled — as we 
may reasonably — those whose occupations are not 
stated, of 112,256 adult males, more than 70,000, or 
about sixty-three per cent., were unskilled laborers. 
From other countries, the proportion of unskilled 
laborers is still larger. From the point of view of 
production there is no cause for alarm; but, from 
the point of view of the wages question, there is, 



244 ^-^Z'' Bargain Theory of ]]'agcs. 



also, unfortunately, little reason for regarding emi- 
gration as a means of lessening the competition for 
work. As the table on page 239 shows, the relief to 
the labor market is hardly ever given when it is 
most wanted. \Mien ten per cent, of the working- 
population of the country are out of work the emi- 
gration of less than one per cent, of the population 
or about two per cent, of the working population 
can hardly have much effect. Emigration, it is 
true, carries out a considerable proportion of the 
lower classes of labor. 

Nothing, probablv, would benefit the working 
classes more than the removal of the competition of 
the casually emploj-ed and semi-vicious class,* but 
the strenuous objections which the United States 
and the colonies raise against the practice of assist- 
ing paupers and criminals has effectively checked the 
tendency to reHe\"e the country of the useless and 
the burdensome members of the community. The 
number actually turned back from New York is not 
large [\n 1S96. only 2799 ^^'■^^ of 343.267, and of those 
sent back 776 were refused admission under the con- 
tract-labor law\ but the deterrent effect must be 
great. The shipping agents are made unwilling to 
accept such passengers and therefore look more 
carefully into the conditions of each case. Volun- 
tary agencies may continue to send children, and 
those who, though not criminal, are not exactly de- 
sirable settlers; but the relief to the poor-rates must 
be inconsiderable and the relief to the competition 
* Booth, Lifi- atiJ Lokv, vol. i., p. 162. 



Eniig-rnfioii and tJic Labor Market. 245 



in the labor market still less. The o-ciieral effect of 
emigration on the labor market and on the wages 
question either for good or e\il cannot be ver)- great. 
The relief afforded is not great enough, nor is it 
given at the right time, to be of much advantage. 
Indirectly, emigration, by extending the market and 
rendering possible economies in production may 
benefit the laboring classes. The export trade of a 
country will increase with the volume of emigration 
and there will be a larger dividend to distribute 
among the owners of the different factors of pro- 
duction. Emigration may also enable those of the 
working classes who remain behind to obtain food 
and other necessaries of life at a lower labor cost. 

The effect of immigration on the wages question 
requires more serious consideration ; because, on 
this point, discussion has not been confined to 
vague generalities. Definite assertions are made 
regarding the effect on wages and in many countries 
a definite policy of restriction has been adopted. It 
is alleged that immigration unnaturally increases 
competition in the labor market and increases above 
all unfair competition of uncierpaid labor. If this 
be the result of immigration, the mobility of labor 
has its darker side ; for it not only tends to level the 
wages up but also, it seems, to level wages down. 

The contention that immigration tends to reduce 
wages, in its usual form, is based on an unqualified 
acceptance of the Subsistence Theory of wages ; and 
the answers to the contention are generally little 
more than unqualified assertions of the Productivity 



246 TJic Bargain Theory of Wages. 



Theory. If \\'agcs arc determined solely by the 
standard of comfort which the lowest class of com- 
peting labor has adopted, then the constantly re- 
newed competition of foreign labor with a low 
standard of life must, as constant dripping wears 
away a stone, wear away the resistance which the 
working classes can oppose to the lowering of the 
standard. If the gates of the country ^^■ere thrown 
open but once in a generation to the crowd of half- 
fed, half-clothed foreigners, there might be some 
chaiK^e of successfully resisting the tendency to 
lower the standard, by bringing all the influences of 
a higher civilization to bear on the incoming horde; 
but, when the occasion recurs every year, and each 
spring brings a new horde, and the effort of re- 
sistance has to be continuously kept up, the work will 
never be done. The higher standard might resist a 
few long attacks; but persistent attacks will wear 
out the energy and patience of the defenders, and 
reduce them to a sullen acquiescence in a lower 
standard of life. On the other hand, if we accept 
the easy optimism of the productivity theory, there 
is no wages problem to be faced. We may encour- 
age immigration, as much as we please; for the 
newcomer will not, simply because he cannot, dis- 
place the old hand. The newcomer will be paid 
according to the work he is able to do. If his effi- 
ciency be as high as the standard efficiency of the 
trade, he will be paid the standard wage, no matter 
what his manner of life may be. Pauper labor is 
pauper labor because it is inefficient ; and it will re- 



Immigration and Wages, 247 



main inefficient probably under the new industrial 
conditions; but it cannot by competition reduce 
the higher wages of more efficient labor. The an- 
swer to the contention that immigration may preju- 
dicially affect the position of labor practically consists 
in the invention of a new style of economic harmo- 
nies by means of which we may prove that fears are 
groundless, for no possible evil can possibly exist. 

A question of fact, however, cannot be disposed 
of in such an airy way. Even if investigation show 
that immigration does not really reduce wages, there 
is at least some ground for the widespread opinion 
that it has this tendency. In some industries, nota- 
bly the textile industries of New England, a fall in 
wages has coincided with an influx of cheap foreign 
labor into the district and the industries; and the 
trade-unions have undoubtedly ground for their 
support of the contract-labor law because foreign 
labor has certainly been frequently imported to 
enable the employer to resist the demands of the 
union. 

In the first place, immigration, although it has 
sadly deteriorated in qualit}'' in the last decades (and 
the competition of the lowest grades is always deadly, 
as Mr. Booth has pointed out) can hardly lower 
wages because of the actual increase in the number 
of competitors. The volume of immigration, great 
though it is, and composed three fourths of able- 
bodied men in the prime of life, bears only a small 
proportion to the actual body of labor — small at 
least, when we take into account that every industry 



248 TJie Bargain TJicory of Wages. 



in a new country is subject to the law of increasing 
returns. Though the average annual immigration 
has increased enormously since i860, the amount of 
capital invested in industry and the total produce of 
industry have increased much more rapidly. In- 
dustry has developed so quickly that it has been 
able to absorb all the immigration : in part the rapid 
development has been due to the great volume of 
immigration. As the West fills up, the power of 
absorption, on the part of the United States at least, 
will probably decrease ; and then the problem set by 
immigration will become more actual. As things 
are, at times during the last decade it has seemed as 
if the United States had already absorbed to satura- 
tion point. The filling up of the West will have one 
important consequence. So long as there is good 
land available in the quantity desired the returns 
to agricultural labor will govern city wages, but, 
as the country fills up, the wages of the city, mak- 
ing allowance for the higher efificiency of city labor, 
will come to be standard for the country. Even 
now, the great majority of the immigrants do not 
go West, but remain at the port of entry, or herd 
in a few of the larger cities where chance has placed 
them and circumstances have developed a suitable 
milieu for them. In these cities their competition 
may serve to lower wages for their class of work, 
and indirectly to lower wages not only in the cities 
but all over the country, provided that the old sup- 
ply of labor is maintained in that class. 

The old supply, however, is not being maintained. 



TJic Displacing of Native Laborers. 249 



It is a well-established fact that the native workmen 
are being displaced but only by being forced up 
higher in the scale. In the same way, as the com- 
petition of women is displacing male workers, not 
by degrading them but by forcing them to seek 
employment in the higher occupations which the 
progress of science is constantly opening up, the 
competition of immigrant labor has, in some cases, 
forced American labor into new channels of activity. 
It might even be more correct to say that the open- 
ing of the new channels for American labor has 
created the vacuum which foreign immigration has 
flowed in to fill. It has been, on a vaster scale, a 
case of suction from within, rather than pressure 
from without. The great increase of immigration, 
in the early eighties, came to meet the demands of 
a period of railroad expansion. The immigrant 
labor performed a task which there was no labor in 
America to perform. The native American has, in 
his time, performed as great a task. He has cleared 
and settled the land ; but he is by nature an indi- 
vidualist, and has never shown any disposition to 
labor in gangs. American labor was more profitably 
and more congenially employed; and when the de- 
mand occurred foreign labor was practically invited 
in. The great volume of immigration was due more 
to American necessities than to European poverty 
and oppression. That there have been individual and 
local hardships to native labor in America during 
the process cannot be denied ; but these hardships 
are such as follow every economic change. 



250 The Bargain Theory of Wages. 



The whole contention for restriction of immigrants 
has been based on the tacit assumption that for- 
eigners prefer to accept lower wages. Few men, 
when they argue, are so clear-sighted as the Toronto 
mechanic who declared, in his evidence before the 
Canadian Labor Commission, that " men never fight 
for lower wages, but try all they can to get higher 
wages." * Immigrants may be willing, during their 
short apprenticeship to the new conditions to accept 
less than the standard rate of wages ; but they are 

exceptions when they stick to that tendency right 
through." f It must be surprising to the supporters 
of the standard-of-comfort theory to see how very 
soon the newcomers rise to their privileges, and re- 
gard high wages as their necessary and just reward. 
Mr. Gould proves in his pamphlet TJie Social Con- 
dition of Labor that the foreigner is not long in rising 
to the native-wage standard. Foreign workmen of 
British or German origin, instead of underselling 
the native workmen, actually receive, on the whole, 
higher wages, partly because, in the displacing pro- 
cess which made room for the foreigner, only the 
less intelligent native workers had been left. An 
influx of foreign workmen may indicate a lower 
standard of efficiency, but is rarely the cause of the 
lowering of the standard. The influx of the French 
Canadians into the New England mills and factories 
occurred about the same time as a fall in wages of 
the native workers ; but, though the popular con- 

* Canadian Labor Commission, " Ontario Evidence," p. 2. 
\ Ibid., p. 367. 



TJie Wages of Foreign-Born Laborers. 251 



elusion is not unnatural, it may be that the more 
intelligent of the textile workers had been displaced 
upwards, and that those who remained behind were 
worth only the lower wages they received. What 
is true of the workmen of British or German origin 
is true, though in a less marked degree, of even the 
degraded " Dagoes," Poles, and Bohemians. Even 
these immigrants show very little tendency to people 
down to their squalor. Their standard of life may 
not be very much higher than when they landed; 
but their savings bank account is. The great eco- 
nomic objection which can be taken to this class of 
immigrant is not that they reduce wages by their 
low standard, but that they save too much and spend 
too little.* The objection has especial force when, 
as in the case of the Italian and French-Canadian 
immigrants, the object of the saving is to acquire 
some small property in the native land and return 
thither, as soon as possible, to genteel affluence. 
It is not that they are not good workmen, or that 
they lower the wages of others through their squalid 
mode of life ; but that they are not good citizens, 
nor ever can be, so long as they cherish the hope of 
leaving the country when their savings are large 
enough. When the immigrant comes with the in- 
tention of settling, his standard of life soon rises. 
The elevation is effected in a comparatively simple 
way. The family ceases to be the wage-earning 
unit ; and with the continual presence of the mother 
in the home, a family life in the sense in which it 
♦Connecticut Bureau of Labor Statistics, Report, 1885, p. 60. 



252 The Bargain Theory of Wages. 



could not exist before begins. Except in those 
cases, such as the French Canadian and the Itahan, 
where there is a dehberate intention to return as 
soon as possible to the native country to enjoy a 
cleared patrimony, the female members of the im- 
migrant family seldom continue long to go out to 
work to eke out the earnings of the head of the 
house. No consequences in industrial life seem 
surer than the fact, that when a man can rely 
on the supplemental earnings of his wife and chil- 
dren his own wages are low. In many cases, the 
family must be taken as the wage-earning unit ; 
and with this as the ground of comparison it does 
not appear that wages in Germany are so very 
much lower than wages in America. The difference 
is certainly not so great as the difference between 
the wages of the German and the wages of the 
American workman. When the German workman 
becomes an American immigrant the family earnings 
remain at nearly the same amount ; but the amount 
is no longer made up by petty contributions from 
all the members of the family. The head of the 
family now contributes the whole amount, for, in- 
fluenced by the example of the country, he has in 
great measure ceased to send his wife out to the 
workshop. 

The contention that the immigration of hordes of 
men with low standards of living must eventually 
reduce wages is based on Ricardo's assumption that 
wages must fall, which, in its turn, is based on the 
Malthusian doctrine that men will necessarily people 



TJie Standard of Living. 253 



down to their standard of comfort. On the con- 
trary, however, the margin for saving which even the 
most degraded, and least desirable from a political 
point of view, possess, shows that the Malthusian 
assumption is not directly and unconditionally true. 
If we give up the Malthusian doctrine behind Ri- 
cardo's assumption, the contention that the low 
standard of living among the immigrants must 
lower wages for native labor loses much of its force. 
So long as the immigrants do not people down to 
their standard, the lowness of the standard may be 
a social evil of the first magnitude; but it does not 
reduce the wages, and consequently cannot reduce 
the standard of the native workman. 




CHAPTER VII. 

TRADE-UNIONS AS A WAGES FACTOR. 

THE Austrian school, in their efforts to estabhsh 
the theory of distribution that the value of 
labor is reflected back from the value of the con- 
sumption goods it is employed in making, have 
overlooked one important factor in the determina- 
tion of wages. It is not only overlooked but, by 
critical implication, rejected by Dr. Smart in his 
recent Studies in Economics. This rejection is the 
more remarkable that it not only prevents them 
from recognizing one of the most potent facts in 
modern industrial life, and, thus, gives an air of un- 
reality to their whole theory, but also is inconsistent 
with their own theory. The doctrine of a living 
wage they reject because it seems to give labor a 
predetermined value; yet on the grounds of their 
own theory, the standard of a living wage remains 
one of the most important determinants of wages. 

On page 6i, of the Introduction to the Theory of 
Value, by Dr. Smart, immediately following the 
enunciation of the law that price is (determined some- 

254 



The Law of the Marginal Pair. 255 



where between the subjective valuations of the last 
buyer and the last seller, who together are pictu- 
resquely called " the Marginal Pair," there stands 
this paragraph : 

" But in the business world itself there is one great 
simplification of the law of the marginal pair. In mod- 
ern industry producers do not make for themselves, but 
for the market, and the amount of their own products 
which they could use in their own consumption is insig- 
nificant. Consequently it may almost be said that such 
goods have no subjective value for the sellers, and we 
lose one whole side of our valuations . . . practically, 
then our law takes this form : Price is determined by 
the valuation of the Marginal Buyer." * 

It may be true, as Dr. Smart contends, that the 
value of labor is simply a case of the general law of 
value, and therefore entirely dependent on utility, 
having, therefore, " no predetermined value "; but 
it does not follow therefrom that the wages problem 
is a simple or simplified case of the general law. 
Labor would get its " value entirely from what it 
produces, "f only under the condition that labor is a 
good of precisely the same character as all other 
production goods having " no subjective value for 
the sellers." The very existence of the modern 
labor question is proof enough that labor is not sub- 
ject to this great simplification of the law of the 
Marginal Pair. The employer, the marginal buyer 

* Smart, Introduction to the Theory of Value, p. 6i. 
f Jbid. , p. 79. 



256 The Bargain Theory of Wages. 



in this case, has not the only word to say in the de- 
termination of the price of labor. The seller claims 
vehemently that he must be consulted and the trade- 
union movement is an effort to give force to his 
claim. The valuation of the buyer, which is, in 
effect, the estimate which the employer makes of 
the efficiency of the labor, is only one of the deter- 
minants of wages. Labor, in spite of sentimental 
objections, is undoubtedly a commodity which is 
bought and sold. It serves no useful purpose to 
speak of selling the fruits of labor. Labor is a com- 
modity subject to market conditions; but it is not 
therefore true that labor is a commodity resembling 
in all essential respects every other commodity in 
the market. 

Labor differs from most, if not all, other com- 
modities in retaining, even under modern industrial 
conditions, its subjective value to the seller. We 
cannot separate the labor and the laborer. It is 
labor that is bought and sold but, with the labor, 
goes the laborer. Therefore instead of a great 
simplification we have a great complication. The 
subjective valuation placed upon labor is not en- 
tirely derived from what it produces or from that 
which is obtained in exchange for its product. The 
direct utility to the laborer of that which he sells 
may not be very great. Modern agrarian con- 
ditions deny to the great majority of laborers the 
possibility of being able to consume what they pro- 
duce. The peasant proprietor, or even the modern 
farmer, may produce all that he consumes and pro- 



Labor not a Simple Case of Value. 2^y 



duce little besides what he does consume; but, to 
the great majority of laborers it is a physical impos- 
sibility for them to consume more than an infinitesi- 
mal fraction of what they produce. It does not, 
however, involve any unjustifiable stretch of lan- 
guage to say that, since labor and the laborer cannot 
be separated in fact, labor has a very definite sub- 
jective value put upon it, and with this estimate 
upon it, enters the market. Even if permission be 
not given to say that labor retains its subjective 
valuation, under modern industrial conditions, yet, 
without fear of contradiction, we may say that labor, 
involving disutility, demands a return of sufficiently 
great utility, at least to counterbalance the disutility 
incurred ; which, if it be not precisely the same as a 
direct subjective estimate, is, in practice precisely 
equivalent to it. 

The law of the value of labor is the law of general 
value without the great simplification ; and the price 
of labor will lie somewhere between the subjective 
estimates of the buyer and the subjective estimates 
of the seller. The estimate of the buyer of labor, 
/. e., the employer of labor, will form the upper 
limit : the estimate of the seller will form the lower 
limit. Between these limits, the value of labor, or 
the wages of the laborer, will be determined ; and 
the result will depend on the comparative strength 
of the bargainers. That the seller is often at a great 
disadvantage because he must sell, while the buyer 
need not buy, does not disprove the statement. 
This hard fact is one of the forces which go to de- 



258 TJie Bargain Theory of Wages. 



termine what the subjective estimate may be; and 
one of the forces which determine where between 
the hmits the actual price of the laborer shall lie. 
The upper limit will be determined by the employer's 
estimate of the efficiency of labor working in co- 
operation with machinery and other instruments of 
capital. The lower limit cannot be a physical mini- 
mum, as Dr. Smart argues in his study of the liv- 
ing wage,* or even a fixed limit. The subjective 
estimate placed on labor by the laborer is essentially 
individual and is not so greatly affected as the sub- 
jective estimate on other commodities is, by the 
social estimate placed on it. Labor is an individual 
exertion ; and the estimate which each man places 
on his labor depends upon the irksomeness of labor 
to himself; and the degree of irksomeness will 
hardly ever be the same for two different laborers or 
even for the same laborer on two different days. 
The lower limit of wages is not an absolute limit. 
Any circumstance which intensifies the necessities 
of the laborer, every hostage given to fortune, tends 
to lower the minimum. The lower limit is, after all 
is said, an opinion the laborer has of his needs and 
his merits, which for the time being he is prepared 
to stand by, and for which, if need be, he is pre- 
pared to fight. It may be a physical minimum or it 
may be a standard of comfort ; but in neither case 
is it a fixed limit. Necessity of competition may 
compel him to lower his estimate and accept a lower 
price for his labor. The laborer, as Thornton in- 

* Smart, Studies in Economics, chap. i. 



TJic Limits of Wages. 259 



sisted, cannot stand out for his price. He must live 
by his labor ; and the body is more than raiment. 

So long as wealth is increasing twice as fast as 
population, and the total product increases more 
quickly than the share of it paid to the laborer, there 
is not much danger that the general body of laborers 
will be called upon to fight to maintain their sub- 
jective estimate. Wages have risen, and are likely 
to continue rising. The subjective estimate of the 
laborer has risen with the rise of wages : his standard 
of comfort is higher, and his standard of subsistence 
is higher. Whether the rise in the standard would 
be maintained through a long period of depression 
cannot be determined a priori ; and it will be well if 
we are never called on to draw a conclusion a pos- 
teriori. It is not necessary that the limits should 
be fixed and absolute. For the time being and 
under the ordinary pressure of circumstances, these 
limits have the same effect as if they were immov- 
able. With contingencies we cannot wisely deal. 
Between those two limits the value of labor will be 
determined by the comparative necessities of the 
bargainers and by the comparative knowledge and 
skill in bargaining which each party brings to bear. 
If we represent the upper limit by I2x, and the 
lower limit by qx, the law of value declares that the 
value of labor will lie between qx and I2x: whether 
wages are lox or iix depends on the comparative 
strength of the bargainers. 

Theoretically, any force which operates on the 
value of labor may tend either to raise or to lower 



26o The Bargain Theory of Wages. 



wages; and in practice, in individual cases, wages 
may fall as well as rise. Practically, however, the 
long steady advance of both nominal and real wages 
has so accustomed us to consider only the more 
hopeful side of the wages question that we reject as 
merely theoretical any discussion of falling wages. 
Wages, according to the view set forth above, may 
rise in three ways, viz., by increasing the seller's 
valuation, by increasing the buyer's valuation, or by 
improving the position of the laborer as a bargainer. 
To put the same statement symbolically, we may 
say that wages may rise if qx is raised to lox, I2x 
remaining stationary ; or qx remaining stationary, 
if I2X increases to 13X; or again, the limits remain- 
ing the same, if the laborer's position is so much 
improved that, in the " higgling " of the market, he 
can obtain better terms, iix, say, instead of lox. 
We may treat each of these methods separately, 
though, as a matter of fact, they react on each other 
and seem to change simultaneously. We can hardly 
improve the position of the laborer as a bargainer 
without at the same time, or previously, raising his 
estimate of what his work is worth to him : nor can 
we raise the lower limit without strengthening the 
laborer in his bargaining. The upper limit is less 
subject to reciprocal influences. It is the employer's 
estimate, and is less likely to change than the lower 
limit. Wages can hardly rise above the employer's 
estimate based on the efficiency of the labor. What 
he pays is, naturally, no perfect guide to what he 
might pay if necessary, but the upper limit, though 



Variations in the Limits. 261 



necessarily to the worker an unknown quantity, is 
none the less a very determinate quantity. There 
is no necessity upon the employer to allow this limit 
to be passed as there may be on the employee to 
accept less than the lower estimate. Yet there is a 
tendency for the limits to move together, to advance 
together or to fall back together, like the two ends 
of a piston rod. They keep their distance because 
an increased subjective estimate by the laborer of 
the worth of his labor makes him a more efficient 
workman ; and whether he is or is not paid accord- 
ing to his efficiency it is economically possible for 
him to demand the higher wage without bringing 
industry to a standstill. 

The laborer can only by increasing his efficiency 
raise the upper limit of wages ; and practically the 
working classes as a whole have been content to try 
to raise wages by raising the lower limit below which 
it is difficult for wages to fall, or by improving their 
position as bargainers. These methods fortunately 
tend to make the laborer more efficient and thus in- 
directly raise the upper limit of wages ; but they do so 
indirectly. Every social and moral force, every law 
and custom, every measure of education and mental 
improvement which tends to increase the laborer's 
dignity and self-respect, every change in his environ- 
ment and in the public opinion regarding his mode 
of life and work, every improvement in the sani- 
tary conditions of workshop or dwelling-place which 
tends to make a more human life a possibility will 
act in the direction of raising his estimate of his 



262 TJie Bargain Theory of Wages. 



work, because raising his estimate of himself. To 
increase the laborer's self-respect is one of the surest 
ways of raising his wages; and this, apart from the 
effect which increased self-respect will have on efifi- 
ciency. On the other hand, an increased efficiency 
of labor tends to raise the upper limit. Increased 
technical skill and improved general education 
render it possible to employ new and improved 
machinery and to adopt processes of manufacture 
which a lower level of general education had made 
it uneconomical to employ. From the resulting 
increased product the employer is able, though not 
necessarily disposed, to hand over a larger share to 
labor; and can hand over a larger share without 
economic danger to industry. There does not seem 
very much ground for the position taken by many 
modern writers on wages, that remuneration is 
strictly proportioned to efficiency if, at any rate, 
this be taken to mean that wages and efficiency are 
almost convertible terms. That the employer can 
pay higher wages is no economic reason why he 
should pay them ; and there is often very little rea- 
son to believe that he does pay them. It is true 
that both wages and efficiency have increased 
during the last half century but we cannot take the 
one as the measure of the other. Indeed, when we 
consider that the amount of capital employed has 
increased much faster than the amount of the prod- 
uct, and that wages have increased in a higher ratio 
than either, it is evident that efficiency and wages 
do not necessarily correspond. What we can say 



The Reciprocal Influefice of the Limits. 263 



is, that out of the increased product the employer 
may and can pay a larger absolute, if not a larger 
relative share to labor. 

The most hopeful feature of the industrial situa- 
tion is that these two methods of increasing wages 
react on each other. Increased wages, and still 
more increased leisure, not only help to promote 
a higher degree of self-respect and of human dig- 
nity but also to raise the standard of efficiency. It 
would be impossible to measure, even had we the 
aid of definite statistics, how far a better man is a 
better workman ; but it is none the less true, though 
we cannot measure, that whatever tends to raise the 
workers self-respect, whatever increases his frugality 
and sobriety, whatever quickens his intelligence and 
enlightens his moral sense, has a direct and immedi- 
ate effect in raising his efficiency. To raise the 
seller's valuation of what he has to sell is one very 
sure, though indirect, way of raising the buyer's 
estimate of what he wishes to buy ; and any increase 
of wages obtained as a result of the moral elevation 
of the workingman, is doubly secured to him against 
reversal. 

Trade-unionism has as yet done little to raise the 
standard of efficiency directly ; although it is possible 
by means of encouragement to technical education 
that much might be effected. So far the effect of 
many trade-union regulations and of the notion, 
which Mr. Schloss calls the theory of the Lump of 
Work, that inspires those regulations has rather been 
to discourage any tendency towards increased effi- 



264 The Bargain Theory of Wages. 



ciency. While the idea persists that the man who 
does his best is a traitor to the cause of labor, trade- 
unions will do little directly to make it possible to 
raise the upper limit of wages. Indirectly, however, 
trade-unionism has done much to raise the standard 
of work. Not only has it insisted that each member 
of the union shall earn the standard wage, but, as 
Prof. Marshall points out,* by quickening the intel- 
ligence, by elevating the dignity of labor and pro- 
moting, in Parliament and elsewhere, measures 
which increase the self-respect of the laborer, it has 
undoubtedly contributed to an improvement of the 
quality of the work done. It is, however, only in 
this indirect way, that trade-unionism has been able 
to raise the upper limit of wages. By its influence, 
the lower limit may rise from qx to (say) lox, and, 
indirectly, the upper limit way have a tendency to 
rise to 13X; but the influence is neither so great nor 
so unique as to justify the claims of enthusiastic 
unionists or a separate treatment of the trade-unions 
as a factor in the labor market. Its influence in 
raising the self-respect of the labor is not much 
more important than the influence of the temperance 
movement, or the extension of the franchise ; and 
there can be no doubt that a higher standard of 
popular education does much more to increase in- 
dustrial ef^ciency than all the multiplicity of trade- 
unions and working-class associations. 

It is in connection with the third method of rais- 
ing wages that trade-unionism chiefly merits treat- 
'^ Economics of Industry, bk. vi., cxiii. 



Trade Umojiism and Wages Bargaining. 265 



ment as a powerful factor in the Wages Problem. 
The influence of the unions has been generally- 
directed rather to making the best use of what at 
present exists than to altering the status quo. Their 
influence is most readily discernible in the endeavor 
to improve the laborer's position as a bargainer. 
Except in the case of the subjective disutilities of 
labor which arise from the material conditions in 
which the laborer Avorks, trade-unionism has rarely 
attempted the more difficult task of raising the limits 
of wages. The result is too remote and can hardly 
be foreseen. The steps to be taken to make qx, 
lox, or to raise i2xto 13X, do not readily commend 
themselves to the average member of the union as 
something for which he ought to make sacrifices. 
The unions, as we shall see, must appeal to the 
fighting instinct in their members to maintain disci- 
pline; and the desirability of legitimately raising the 
limits within which wages are determined has never 
been a matter of contention. The unions have con- 
fined themselves to the more obvious task of striving 
to secure that as large a portion of the difference 
between the two limits as possible should come 
to the wage earner. The distribution of this differ- 
ence depended not on the strength of the limits 
to resist attack, but on strength of the bargainer; 
and the object of trade-union policy has been to 
strengthen the laborer as a bargainer in the labor 
market. 

The laborer, bargaining in his own strength, is 
subject to serious disabilities. Usually he has no 



266 The Bargain Theory of Wages. 



reserve fund to enable him to " stand out, as all 
other sellers do, for his price." * 

" A landlord," says Adam Smith, " a farmer, a master 
manufacturer, or merchant, though they did not employ 
a single workman, could generally live a year or two 
upon the stock which they have already acquired. 
Many workmen could not subsist a week, few could 
subsist a month, and scarcely any a year without em- 
ployment. In the long run the workman may be as 
necessary to his master as his master is to him, but the 
necessity is not so immediate." f 

It is the immediacy of the necessity which makes 
all the difference in the bargaining. The laborer 
must sell to-day: the employer need not buy till to- 
morrow. To the master it is only a question of 
profits : to the laborer it is a question of life. Trade- 
unions, with their out-of-work funds, enable the 
laborer to stand out for his price, as other sellers 
do. They practically endow the laborer with a re- 
serve ; and thus enable him to bargain with the em- 
ployer on more equal terms. This is one great 
disability they remove, in part at least ; but it is not 
the greatest to which the laborer is subject. The 
individual laborer is not simply set over against the 
employer. He must sue for work as one of a 
crowd. When two men run after one boss, said 
Cobden, wages fall ; and the first clause is more 
often realized than the second of his much quoted 

* Thornton, On Labor, bk. ii., c. i, 
I Wealth of Nations, p. 28, 



TJie Disabilities of the Laborers. 267 



dictum. The laborer may be endowed with a re- 
serve, and may stand out for his price, as other 
sellers do ; but the competition for employment may 
be so great that his place is filled while he stands 
out. No individual workman is indispensable. 
" In the long run," to repeat the sentence from 
Adam Smith, " the workman may be as necessary 
to his master, as his master is to him ; but the neces- 
sity is not so immediate." Labor is indeed indis- 
pensable, but no individual is. I1 11 y a pas d' Jiomuie 
nc'cessaire, Matthew Arnold (as he tells us), was fond 
of quoting to the most complacent people; and the 
lower we go in the ranks of industry, the truer the 
doctrine is. This is the reason why strikes among 
unskilled laborers are so rarely successful. Unskilled 
labor may be necessary and indispensable ; but no 
unskilled laborer ever is. His place can be too 
easily filled and his services as readily rendered by 
another. The object of trade-union policy, through 
all the maze of conflicting and obscure regulation! 
has been to give to each individual worker some- 
thing of the indispensability of labor as a whole. 
Had the unions power as they have ambition they 
might rule the industrial world. That their policy 
has not effected more than it has is due partly to the 
small proportion of the workers included within their 
numbers, and partly to certain natural limitations 
to their power. They could not succeed in engross- 
ing the whole of the product of industry because the 
master is, in present industrial conditions, as neces- 
sary to the laborer as labor is indispensable to the 



268 The Bargain Theory of Wages. 



master. A large measure of success in their policy 
would probably result in a diminution of the de- 
mand for labor owing to the conversion of circulat- 
ing into fixed capital and the adoption of labor-saving 
machinery. There is small risk of their policy be- 
coming dangerously successful. The natural limita- 
tions to the policy quickly check any excess of 
zeal. 

The province of trade-union action is the strength- 
ening of the position of the laborer as a bargainer, 
the enabling him, in particular, to resist that pressure 
of circumstances of which employers might be ready 
to take advantage. In the useful phrase given us 
by Mr. Sidney Webb, the essence of trade-unionism 
is " collective bargaining." More or less uncon- 
sciously, all the regulations of the union have this 
in view; and most of the customs and prejudices of 
the trade-union world are inspired by this idea. 
The solidarity of labor for which they strive is only 
a means to collective bargaining; and, with this in 
view, they strenuously oppose many reforms which 
would probably secure great, though temporary ad- 
vantages for at least a large number of workers. 
They oppose any scheme, however enticing or 
philanthropic, which would have as one of its re- 
sults the separation of the individual workman from 
his fellow workers. They will not allow grading of 
workers according to ability, although the demon- 
strated result is to make it increasingly difficult for 
older men to obtain any work when they no longer 
have the physical strength to earn the trade-union 



Collective Bargaining. 269 



minimum.* They object, with the success of the 
avowed policy of the South Metropolitan Gas Com- 
pany before their eyes, to any, and every, scheme 
of profit sharing: such schemes, however profitable 
they may prove to the individual workmen, having, 
as their result, if not as their motive, the detaching 
of a section of workers from their fellows. They 
are, with some exceptions, opposed to piece work, 
because it offers a standing temptation to the indi- 
vidual to set the pace of work too fast for his weaker 
or less skilled fellow workers. As a body, they will 
not hear of measures which allow contracting out ; 
because of the inevitable effect on the solidarity of 
labor. Their aim is to compel the employers to deal 
with their men collectively. The history of the 
growth of their power is simply the history of the 
growing public and legal recognition of their right 
to represent the collective interests of their members. 
From first to last, this object has been kept in view; 
and the object is as important in the present day as 
ever it was. Divide and govern has ever been the 
policy of the master. To treat with each individual 
as an individual and to ignore the trade-union which 
claimed to represent him, has always been the prac- 
tice ; now it is also the avowed policy. Masters' 
associations have been formed to fight the trade- 

* The Halifax (Nova Scotia) Shipwrights and Caulkers Association 
allow men over sixty to work in the trade for what they please. If 
an individual, however, chooses to remain in the society after he has 
reached sixty years he is subject to the usual penalty if he accepts less 
than the Union pay, $2.50 a day. Royal Commission (Canada) on 
the Relations o£ Capital and Labor, Nova Scotia Evidence, p. 108. 



270 TJie Bargain Theory of Wages. 



unions with their own weapons. The employers 
maintain, exclusively for their own purposes, as they 
avow. Associations of Free Laborers, so called, al- 
though the government and management are car- 
ried on by, and for the interest of, persons who are 
not members. These associations are designed to 
permit the masters to treat with all workmen as in- 
dividuals, in contempt of the unions. 

The trade-unions have not, so far, been very suc- 
cessful in carrying out their policy. After nearly 
three quarters of a century of agitation, the English 
unions secured a modified recognition of their posi- 
tion. The right to combine was admitted, and legal 
protection against their own officers was accorded ; 
but little else has been gained. Public opinion, 
occasionally and spasmodically, allows the right of 
the unions to treat for the men. Here and there, a 
more enlightened employer has recognized that it is 
better to deal with a strong union than with indi- 
vidual workmen; but as yet the unions have not 
won any legal locus standi as the representatives of 
their members. It is still held in law that there is 
a separate contract between the employer and each 
of his employeeso The union may order a strike ; 
but before the strike begins each individual employee 
must give separate notice of the termination of his 
individual contract. The union is not competent to 
give legal notice for its members ; and a collective 
strike may legally take place only after individual no- 
tice has been given. To obtain this legal position, as 
the representatives of the members, the trade-union 



The Membership of the Unions. 27 1 



leaders are still striving; and until this recognition 
is obtained, collective bargaining will not become, 
even between the limits, a complete determinant of 
wages. 

The reason why this legal recognition has not been 
obtained is that the trade-unionists do not, in many- 
trades, form a large proportion of the workers.* 
There is a natural hesitation in committing to a 
fractional proportion the regulation of the whole of 
industry. It is not, however, necessary for the 
practical success of the policy of collective bargain- 
ing that the whole of labor should be included within 
the unions; and hitherto the union policy has been 
more successful than the membership seems to have 
warranted. This is possibly due in part to the fact 
that the membership has been made up from the 
best workmen in the trades, who might, in any case, 
have obtained the rise of wages which they disinter- 
estedly attribute to the union policy; and, partly, 
also, to the fact that the full strength of trades- 
unionism is not, at most times, adequately repre- 
sented by numbers. The membership varies a great 
deal according to the necessities of the industrial 
world. In times of peace and prosperity, the 
membership will hardly maintain itself at fighting 
strength. In times of threatening it receives large 
accessions. There seems to be a kind of nucleus 
of the labor army continually under arms while the 

* According to Mr. Frederick Wicks {Nineteenth Century, 1891) 
about ir per cent, of the working males over twenty in the United 
Kingdom are enrolled in the unions. 



2/2 The Bargain Theory of Wages. 



large part of its fighting strength is in reserve and 
does not remain with the colors. This reserve is 
not so effective as the stalwarts who remain all the 
time under arms but it has its effect in maintaining 
a large degree of solidarity and in giving greater 
authority to the demands made by the standing 
army. The knowledge that danger brings out the 
reserve checks aggression which apparent numerical 
weakness invites. 

At the same time, this habit of irregular service is 
almost necessarily fatal to discipline, and shuts out 
the hope of complete success. Effective collective 
bargaining depends even more on discipline and 
cohesion than on numbers. The unions are, there- 
fore, faced with a twofold difficulty, and, conse- 
quently, a twofold task. They cannot hope to 
obtain recognition from employers as the represen- 
tatives of the employees, while they fail to retain 
their hold on their own members. The very possi- 
bility that an agreement with the union may be 
repudiated by the workers outside the councils of 
the union is sufficient to prevent any important 
agreements from ever being made. Until the unions 
secure the adhesion of their own lukewarm sympa- 
thizers and the implicit acceptance of the collective 
decisions by every member, whether consulted or 
not, they will gain only a grudging, or, at most, 
a sentimental recognition from a few employers. 
Their main task, as it is the chief obstacle in the way 
of success, is to make their internal discipline more 
perfect and to strengthen their hold on their own 



Discipline the Problem for Trades- Unions. 273 



members. The difficulty is greater in peace than 
m war. While a strike is impending and during its 
continuance a union has little difficulty in control- 
ling its own members. During peace it is harder to 
convince unenlightened members that the benefits 
of concerted action and collective bargaining out- 
weigh the sacrifices which must be made to obtain 
these benefits. Caprice and lukewarmness alike tend 
to reduce the membership when nothing calls forth 
the spirit of class antagonism. Consequently, it is 
not merely as a remedy against the masters, but also 
as a remedy against the indifference of their own 
members and the lack of habits of discipline, that 
newly formed unions find themselves compelled to 
carry on a militant policy and engage in strikes. In 
older unions, among whose members the habit of 
obedience has been formed, there is not the same 
necessity for a perpetually militant policy. Their 
proved strength has not only won them the respect 
of the employers but has also secured cohesion in 
their own ranks. 

The difficulty of securing this cohesion arises 
from the fact that the only power which a union 
can exercise over its members is a moral power. 
It depends on their willingness to make pres- 
ent sacrifices for future benefits. Even where 
habit has reinforced the original moral motive the 
control of the members during times of peace is a 
serious question. Many of their rules and regula- 
tions are more honored in the breach than in the 
observance; and most unions have been compelled 



2/4 TJie Bargain Theory of Wages. 



to reinforce their authority by more mechanical 
methods than an appeal to principle or future self- 
interest. With the exception of the militant new 
unions, nearly every association exercises the func- 
tion of a benefit society, and by means of deferred 
payment endeavors to retain control of its members. 
The means which they object to the employer us- 
ing in order to attach the men to his service they 
themselves employ in order to maintain the solid- 
arity of labor. These benefit funds were originally 
established purely as benefit funds, but now they 
are made to serve a double purpose. It may seem 
strange that members of a voluntary association 
founded to secure the interests of its own members 
should be so difficult to manage ; and some have not 
hesitated to write strongly of trade-union tyranny. 
It is asserted that coercion of some sort must be 
used to induce those members to join who are so 
hard to retain and so difficult to manage. Surely, 
however, the divergence between collective and in- 
dividual interests is no uncommon political phenom- 
enon. Every day collective decisions are being made 
by men who know that personally they will not abide 
by these decisions. Everyone who has lived in a 
prohibition town knows men, saloon keepers even, 
who, having voted for " no license," not only wink 
at the violation of the law but often violate it them- 
selves. It is a weakness by no means confined 
to the working classes that their immediate inter- 
ests weigh heavier with them than their collec- 
tive decisions. How easy a matter is it to induce 



TJic Obstacles in the zvay of Dicipline. 275 



the shopkeepers in one district to stick by an early- 
closing agreement ? Has not the ring or the cor- 
ner developed under pressure of the same difficulty 
into the combine and the trust ? Many an ardent 
advocate of high protection has, without m.uch hesi- 
tation, done a little smuggling on his own account; 
with less justification, too, for his inconsistency, 
than the trade-unionist has for his, who, after voting 
for a general strike goes back to work while his fel- 
lows remain out, or, after a long experience of being 
out of work, undersells his fellow-workers, although 
he has previously acquiesced, at least, in the prin- 
ciple of the trade-union minimum wage. It is not 
trade-union tyranny which lays down these regula- 
tions but human nature which necessitates them. 
For the laborer must liv^e by his own labor; and 
when there are added the necessities of his wife and 
children, it is small wonder that he is sometimes false 
to his unionist principles. Without injustice to the 
sex, when we remember how much more to a woman 
is the economy of her own household than the collec- 
tive interests of labor can ever be, we may say that 
the women are a most potent cause why trade-union 
policy is not more successful. When, in a long spell 
of forced idleness on the part of the breadwinner, 
article after article of furniture disappears from the 
home, to buy the children bread, it is natural that 
the wife should urge her husband to sacrifice what 
is to her only a half intelligible principle. Women 
live more in the concrete than men, and have less 
power of realizing an abstract principle. Conse- 



276 The Bargain Theory of Wages. 



quently, the influence of the women must be 
counted as, on the whole, one of the influences 
hostile to the success of trade-unionism. Their in- 
fluence reinforces the individual interests which it is 
the poHcy of the union to subordinate. However 
much sympathy leaders of the union may have with 
the individual's position they must set their faces 
against any pursuit of self-interest which might 
weaken his allegiance to union principles. It is 
because trade-unionists believe that the interests of 
the individual worker are best guarded and main- 
tained by concerted action that the policy of collec- 
tive bargaining has been adopted ; and collective 
bargaining is not tyranny but democratic principle. 

The difficulty of maintaining cohesion and disci- 
pline is the great natural hmitation on the action of 
trades-unions in raising wages. It is a permanent 
limitation because it arises from the inherent im- 
perfections of human nature and will remain until 
man is perfectly socialized in his motives as well as 
in his outward actions. It arises not so much from 
the small proportion of workers included within the 
unions as from the conflict of individual and collec- 
tive interests ; a conflict which, in the nature of 
things, is probably inevitable. The difficulty may, 
it is true, by means of out-of-work funds and strike 
benefits, be met and partially overcome; but, while 
the necessity for trade-unions continues, this diffi- 
culty will confront them in carrying out their policy. 

The proportion of the actual workers included 
within the union becomes of more pressing import- 



Tlie Cardinal Maxim of Trade- Union Policy. 277 



ance when the wisdom of any particular application 
of the principle is under consideration. The utmost 
that the fullest application of the principle could 
achieve for the laborer is that the actual value of 
labor should be determined as nearly as possible to 
I2x, the upper limit. Trade-union action would be 
suicidal if it demanded more of the product in wages 
than the industry can economically afford. It may 
try to secure that the whole of the debatable ground 
is secured for labor; but it is practical wisdom to 
recognize that the whole of this ground can never 
be secured at a stroke. Fcstina Icnte must be the 
motto of the union leader unless success is to be im- 
mediately reversed ; and advance can be made only 
by stages. 

The weakness of the position of the employer as 
a bargainer in the labor market is that delay means 
loss of profits. Pie can, it is true, support himself 
out of the stock which he has already acquired ; but 
he is never willing to do so if he can avoid it. The 
greater the amount of capital involved in his busi- 
ness, the greater the loss arising from delay in pro- 
cess of production. The employer may therefore 
be willing to grant a demand which is only trifling 
in itself to avoid a greater loss by delay. If the de- 
mand is put forward in such a way that it alarms him 
with the prospect of further demands to be made, 
he may decide to resist before the opposing forces 
are flushed with success. So it is the cardinal 
maxim of wise trade-union policy never to make 
extravagant demands, or to ask more than the em- 



2/8 The Bargain Theory of Wages. 



ployer will grant rather than face the loss from re- 
fusing. If he does refuse, there is certain loss to 
him — not, perhaps, the great loss of having all his 
capital made idle, but certainly the loss which arises 
from the necessity of making a change in his staff of 
workers and in getting them trained to his methods. 
Never to press for a larger gain than is covered by 
the difficulty of replacing the body of present em- 
ployees by outside labor," * is the maxim of a wise 
policy. It is a wise policy not only because it is 
likely to be successful, but also because it does not 
expose the laborer to any unnecessary risks. The 
laborer must live by his labor; and if by grasping at 
a greater gain he sacrifices the employment he has, 
his condition is both hard and ridiculous. What 
demand the cost of replacing the present staff by 
outside labor may admit, depends on the supply of 
labor, the strength of the union, and the nature of 
the work. If a large proportion of the workers 
is included within the union they may press for a 
larger gain because the difficulty of replacing the 
body of the present workers may be so great that 
the employer must either submit to the demand or, 
refusing, submit to have his works closed down. In 
the skilled trades, where a considerable proportion 
of the workers is included within the union, a de- 
mand, within the proper limits, will generally be 
granted unless it happens, as it may very probably, 
that the strength of the workers has already secured 
for them all the difference between the two esti- 

* Hobson, Problems of Poverty, p. Ii6. 



The Effect of Trade-Unions on Wages. 279 



mates. In the case of unskilled workers, demands 
must be very much more moderate, because the cost 
of replacing is so much less. 

The advocates of trade-unions claim that the 
greater part of the rise of wages during the last half 
century has been due to their influence. Certainly 
the rise of wages and the growth and progress of 
trade-unionism have proceeded /rtrZ/f^j"^"//. The ex- 
amination we have made of the influence of collective 
bargaining shows that the claim must be modified. 
Had the standard of efficiency not risen steadily, 
there would have been no steady rise of wages, un- 
less, indeed, we are to suppose that the difference 
between the two limits, at the beginning of the 
period, was enormous : which we have no ground 
for supposing. Indirectly, as we saw, trade-union- 
ism has promoted efficiency and, indirectly, has 
thus raised the upper limit of wages. Directly, 
however, the method of collective bargaining can 
secure only that the value of labor is determined 
nearer the upper limit than the lower; and, had 
there been no rise in the standard of efficiency, 
there would, very quickly, have been a limit to the 
rise of wages. 

When we regard the policy of trade-unionism re- 
garding wages as being directed towards the collec- 
tive interests of the workers the balance sheet of a 
strike becomes of secondary importance. To the 
individual striker, the result may be a great loss : to 
the whole body of workers it may be a great gain. 
We can no more estimate the wisdom of a strike 



28o The Bargain Theory of Wages. 



from the point of view of the actural loss or gain to 
the strikers, than we can estimate the results of a 
battle or a campaign by the number of lives lost.* 
Even a virtual defeat when the strikers, or so many 
of them as can find room, go back to work, with 
their demands ungranted, may result in a great gain 
to the body of workers as a whole — to the body of 
workers in that trade directly and in a greater meas- 
ure, but also, though indirectly, to the workers in 
all trades; and an advance which was refused, when 
thus violently demanded, may be conceded by de- 
grees when more cautiously requested — and not to 
the strikers only — because the employers have 
learned to respect the fighting power of their 
employees. 

* Marshall : Economics of Industry, p. 391 ; see also Nicholson's 
Strikes and Social Problems. 



CHAPTER VIII. 

THE METHODS OF INDUSTRIAL REMUNERATION 
AS A WAGES FACTOR. 

MR. SCHLOSS, in his Methods of Indttstrial 
Remimeration, has confined his investigation 
to the method as distinguished from the amount of 
the remuneration; but the method is not without 
bearing on the more essential question of the amount. 
The system adopted may be of such a nature as 
materially to affect the position of the wage earner 
in the wages bargaining: his freedom may be cur- 
tailed, his general character weakened, his ef^ciency 
reduced, by one method of remuneration; while by 
another his mobility and his independence may be 
increased, the stronger elements in his character 
allowed to develop, and the utility of the reward, 
for which he is induced to serve, augmented. 

The form of the wages contract which is made at 
the conclusion of the bargaining has, therefore, 
sufficient importance to justify separate treatment ; 
even although the methods of remuneration are not 
to be regarded as an independent factor in the pro- 

28l 



282 The Bargain Theory of Wages. 



cess but simply as a general condition affecting the 
factors which have already at greater or less length 
been discussed. This chapter is, therefore, an ex- 
amination of the way in which the manner of 
payment affects the mobility of the laborer, the 
possibility of combination, the efificiency, the dis- 
utility, etc., of labor; and may be regarded as a 
supplement of or appendix to the previous chapters. 

The time and the manner and the kind of re- 
muneration which the laborer receives determine in 
part the laborer's estimate of what the labor he ren- 
ders is worth and the employer's estimate of what 
the laborer's work is worth in the market ; and 
affect strongly the comparative strength of the bar- 
gainers in the process of bargaining. 

The laborer's estimate of what his labor is worth 
— the lower limit of wages — is partly conditioned by 
the methods of remuneration which may either in- 
crease or diminish the disutility of labor, or increase 
or diminish the utility of the reward. The former 
is not directly or greatly affected. Indirectly, by 
weakening the laborer's power of resistance, certain 
forms of payment, notably truck payments, lead to 
evil conditions which materially increase the dis- 
utilities; and generally speaking those forms of 
wages-contract which leave some element indefinite, 
intensify both the positive and negative disutilities. 

Profit sharing, as we have seen, has the effect 
of increasing the labor expended without propor- 
tionally increasing the reward; and piece work, by 
forcing the pace and paying all according to the 



Effect on the Disutility of Labor. 283 



standard of the most efficient, has the same effect.^ 
The objections which the trades-unions raise against 
the system of piece work are not based on any en- 
vious grudge of a higher reward for higher efficiency, 
but on the fear that the superior ability of a few may 
be set as the standard for all. Time wages have 
nearly always a quantitative reference and in the 
ethical phrase afe sanctioned by the dismissal of all 
who fail to reach the standard. This standard tends 
to be the efficiency of the best workers on piece 
work ; and the consequence of enforcing this standard 
would be that for a given reward a greater expendi- 
ture of energy is required. 

The moral disutilities of labor are generally in- 
creased by those forms of wage payment where the 
laborer is not left in free and complete command of 
his reward. These intensify the irksomeness of labor 
and the sense of dependence; and, consequently, 
mean a larger output of energy and a greater gen- 
eral disutility. 

The influence of the methods of remuneration on 
the other element which goes to make the laborer's 
estimate — the utility of the reward — is more direct. 
Wages are earned in order to be consumed and the 
method of payment obviously affects the command 
the laborer has over consumption goods. The maxi- 

* Piece work has undoubtedly the effect of increasing the output of 
the worker but it has had no influence in raising the average wage of 
the piece workers above that of the time workers. The average 
annual time wages in the United States is $498 — the average annual 
piece wage is $500. Wright, Industrial Evolution of United States, 
p. 197. 



284 The Bargain Theory of Wages. 



mum utility is obtained by the laborer when his 
wages are paid, at short intervals, and in the legal 
tender of the country. Whether he obtains an ethi- 
cal maximum depends entirely upon himself and his 
discretion in consumption. He certainly obtains 
the fullest possible opportunity. The minimum of 
utility is in general obtained when the wages are 
paid in goods, or in orders at the store only, or at 
long and irregular intervals. There are two cases to 
discuss (i) when wages are paid in cash but at long 
intervals or irregularly; and (2) when they are paid 
in kind or in goods, whether by the week, the month, 
or the season. 

In the industrial centres wages are now generally 
paid by the week; but in many districts where 
money is scarce, or labor unorganized, and in cer- 
tain employments where the natural conditions do 
not favor weekly payments — e. g., railroads — wages 
are still paid by the fortnight or the month. There 
can hardly be any question that weekly payments 
are a benefit to the laborer. On this score his own 
demand may be taken as final ; and there is practical 
unanimity among the working classes in regarding 
weekly payments as an advantage. They are en- 
abled thus to avoid the increased prices which are 
charged when credit is given ; and although, in a few 
instances, it may be that the laborer, paying cash, 
is unable to obtain a discount from credit prices, and 
may thus be made to make up to the storekeeper for 
the bad debts of his credit customers, such instances 
are rare and occur chiefly in smaller towns and vil- 



Effect on the Utility of the Reward. 285 



lages. Evidence was taken by the Canadian Labor 
Commission on this subject and the opinion of 
working-class witnesses was that with weekly cash 
payments they could spend their money twenty to 
twenty-five per cent, better than if, in consequence 
of monthly payments, they were compelled to buy 
on credit. On the other hand, the employers who 
still maintained the practice of monthly payments 
averred that weekly payments led to extravagance 
and dissipation while monthly payments encouraged 
saving and enabled the worker more easily to meet 
any large liability — c. g., house rent — he might be 
required to pay. To the best workmen weekly pay- 
ments might be no great advantage, and to the dis- 
sipated they would prove a great evil ; but to the 
average workmen they would be highly advan- 
tageous.* 

* Ontario Evid., p. 875, Can. Labor Com. "The employees 
would rather have their pay weekly, because it would make them 
financially more independent. We find that in a great many in- 
stances (witness was District Master of the Knights of Labor) work- 
men have to run monthly accounts, and that puts them entirely at 
the mercy of the corner grocers. You feel under obligation to the 
man ; you have to take what he has got and you cannot go anywhere 
else ; you are obliged to stay there." 

Nova Scotia Evidence, p. 364. " The men could live for from five 
to eight dollars a month less for cash, if they had it, than they can 
upon credit. . . . When you have cash the merchant will take 
what you give him, whereas, if you get goods on credit they go into 
his books at his own figures." 

Ibid., p. 441. "It would give the men a much better chance to 
deal for cash, and would give them a chance to buy many things 
cheaper than they can do by the present system of monthly payments. 
If a man comes in with country produce and you are paid weekly or 



286 The Bargain Theory of Wages. 



Not infrequently the payment of wages is not 
made for some weeks after the time sheet has been 
made up and the workmen get advances at high 
rates from outsiders on this security. Sometimes 
the employer pays wages in due-bills payable at 
some future date ; and the wage earner may either 
wait or get them discounted. The rates of discount 
on such due-bills are generally high not only because 
the security may not be good, but also because the 
necessities of the worker are immediate. One wit- 
ness testified before the Canadian Labor Commis- 
sion * that he had been paid with bons or due-bills 

fortnightly you have cash. If you have not, he goes to the store and 
sells what he has, and you have to buy the same article on credit and 
pay more for it." 

Ibid., p. 405. " In reference to the subject of weekly payments 
. . . the only difference is that the men go drunk once a week 
instead of once a fortnight." 

* Quebec Evidence, p. 783. — We were obliged to take ' bons' notes 
to be paid ; without these we might have waited a long while and 
perhaps lost our money. 

It was an order, a note to be changed, a promissory note : " I pro- 
mise to pay in thirty days the sum of 

Q. "What did you do with that note ? A. I got it changed. 

Q. Did it cost you anything ? A. One dollar and the note was for 
twenty. 

Q. Did you change it in a bank or with somebody in connection 
with your master? A. With a broker. 

Q. Did your master send you there or did you go of your own ac- 
cord? A. My master told me to go there. 

Q. Then the master gave you a note of twenty dollars to pay your 
wages, and sent you to the broker he pointed out who paid you the 
note and retained the dollar? A. Yes. 

The only industry in which this practice still survives to any extent 
is lumbering where a considerable interval of time must elapse between 



Deferred Payment. 287 



which were discounted at sixty per cent. Several 
Ontario witnesses stated that they had been paid in 
due bills which were discounted by local shop- 
keepers at fifteen, twenty-five, and even fifty per 
cent. ; although some merchants in Ottawa were 
said to receive them at face value.* 

The manner of payment here not only restricts 
the command which the laborer would otherwise 
have over the necessaries of life but actually re- 
duces the nominal wages paid. 

Payment of wages in kind may be either produce 
wages or truck wages. For the former there is 
much to be said as a method of securing the real 
advantages of profit sharing. Mr. Garnier advocates 
it as a method of improving the condition of the 
agricultural laborer. The great objection to pay- 
ments in kind is that the reward is not definite 
and, therefore, leaves the laborer continuously at 
the discretion of his employer. The goods received 
in payment may vary in quantity, quality, and 
value; but in the case of produce payments, though 

the performance of the work and the marketing of the product. 
Should the " cut " of a small operator, or subcontractor, be held up in 
the smaller streams and tributaries he is generally paid by means of a 
due-bill payable next season when the lumber arrives at the market or 
when his cut gets out into the main stream ; and presumably he often 
pays his hands for their winter's work in the same fashion. Quebec 
Evidence, p. 1190. 

* Ontario Evidence, p. 11 88. These due-bills are not scrip regu- 
larly issued but notes of hand which it is said are not always redeemed 
when they fall due. Ontario Bureau of Statistics Report, 1888, iv. , 
p. 8. This practice has with the truck system practically disap- 
peared. 



The Bargain Theory of Wages. 



the value is not definite, the quantity always is, and 
the quality is ascertainable. The variations in value, 
moreover, are determined, not by the will of the 
employer, but by the forces of the market. " I 
would at any rate suggest," he says, " that there 
should be less cash and more flour in the wages of 
each Saturday night " ; and he quotes with approval 
from the Journal R. A. S. E., the following 
passage : 

" One very obvious benefit arising to the hind from 
this mode of paying in kind, besides that of having a 
store of wholesome food always at command, which has 
not been taxed with the profits of intermediate agents, is 
the absence of all temptation which the receipt of weekly- 
wages, and the necessity of resorting to a town or village 
to buy provisions, held out of spending in the ale-house 
some part of the money which ought to provide for the 
wants of the family." . . .* 

In so far as produce wages are definite, the system 
is advantageous to all concerned, but especially so 
to the wage earner, owing to the great saving on the 
profits of middlemen; t but it is doubtful whether 

* Garnier : — Annals of the British Peasantry, p. 411. As he 
points out (p. 410) the good in payments in kind was abolished by the 
English Act of 1887 while the bad was practically retained. Intoxi- 
cating liquors may not legally be given in payment of wages ; but the 
employer may still do so by calling it a gift. 

•f- The system of metayer farming which is practiced largely in some 
of the older of the United States may be regarded either as a system 
of produce rents or of produce wages. The disinclination of the de- 
scendants of the original settlers to engage in farm work and their 
natural exodus to the cities and the professions have rendered them 



Produce ]Vagcs. 289 



these advantages offset the disadvantages which 
arise in a period when wages are falhng. Wages 
which are paid, in whole or in part, in goods, are 
subject to unrecognized fluctuations with the level 
of prices. Thus the wages of lumbermen in Can- 
ada, and domestic servants everywhere, have either 
fallen, or not risen so far as at first appears, because 
board is included in their pay and the prices of most 
of the articles they consume have fallen, although 
the increased variety and the improvement in the 
quality of the board provided may restore thebalance. 
The truck system is the outstanding form of the 
payment of wages in kind and is still prevalent in 
many districts. It has disappeared, indeed, at all 
the industrial centres and the practice is confined to 
backward districts, where banking facilities are poor, 

unwilling or unable to continue cultivating the old homestead. Labor 
is too dear to allow the farm to be cultivated entirely by hired labor ; 
and it is difficult to dispose of the farm, apart from sentimental rea- 
sons, on advantageous terms, sometimes on any terms. At the same 
time there has been an immigration of European farmers without 
capital. The system of farming by ' halves ' or ' thirds ' which has 
been developed is as natural an outcome of these circumstances as the 
stock and farm leases of the 15th Century were of the conditions pro- 
duced by the Black death. The owner supplies the farm, the stock, 
and sometimes even the implements, and the farmer pays one half, or 
two thirds, of the produce to the owner, according to the amount of 
capital supplied. In the Maritime Provinces of Canada where the 
same agricultural and social conditions prevail the metayer system has 
not been developed owing to the absence of a foreign element in the 
population accustomed to intensive farming. In New Brunswick, 
however, the hay harvest is often cut and private gardens are occa- 
sionally cultivated on this system. In this case we have a system of 
produce wages rather than of produce rents. 
19 



290 The Bargain Theory of Wages. 



and labor unorganized and ignorant, and to those 
industries which, depending on the season, involve 
irregular employment and proportionally large capi- 
tal. The effect of this method of industrial remuner- 
ation was characterized in the report of the Canadian 
Labor Commission as always amounting to a sweated 
wage ; and in its worst form, as it has existed in many 
places, it has resulted, as was epigrammatically said 
of it in Newfoundland, in the laborer being not paid 
in " part goods, part cash," but in " part goods, 
part trash." Frequently the laborer, where this 
system is in force, has received no part of his wages 
in cash. By means of deferred payments and irreg- 
ular employment, the worker gets involved in debt at 
the company store, and then he has practically ceased 
to be his own master. Those who are once in the 
toils of the system are seldom able to work their way 
out again ; and the more deeply they are involved, 
the more subject are they to petty tyrannies at the 
hands of the subordinate officials of their employers. 
The salesmen in these stores frequently carry side 
lines of goods which they practically force '^ upon un- 
willing but helpless customers, because they control 

* " But there is another evil which we learn in connection with 
this system. At some company stores in this county the managers, 
or clerks, carry side lines of goods, usually jewelry, which they sell 
to men who have employment around the works ; and in one instance, 
it has been told us that a workman who had purchased a $1 5 fiiled- 
case watch for the moderate sum of $35 . . . went and asked 
for an order to get $5 in cash at the ofifice of the mine. 'Yes,' was 
the reply, 'if you give me $4 on that watch you bought from me last 
month.'" — The Island Reporter {Ca.^eV>VQtOTL), Nov. 11, 1896. 



^^ Part Goods, Part Trash'' 291 



the avenues of employment. The object of those 
who practise the system in its most objectionable 
form is to control the expenditure of their laborers 
for the sake of the profits, legitimate or not, of the 
retail business; and the laborer is seldom allowed to 
carry away any part of his earnings in cash. In 
many cases, the only way in which ready money 
can be obtained is by reselling the goods obtained 
at the stores; and there is a profitable business, 
mainly in the hands of the saloon-keepers, of buying 
from the laborers the articles they have obtained at 
the stores. * This is not infrequently the only 
method in which the goods required can be ob- 
tained, for when the goods asked for are not in 
stock, the intending buyer has to do without, having 
neither the cash nor the courage to seek elsewhere. f 
The problem how far the payment of wages in 
goods obtained at these stores curtails the utility of 

* A valued correspondent, Mr. C. Ochiltree McDonald, of Port 
Morien, Cape Breton, who has given me much information regard- 
ing the working of the truck system in Cape Breton, informs me that 
there were lately auctioned off by a drink-seller at Glace Bay, C. B., 
1038 tobacco pipes, which had been taken from the miners in exchange 
for drinks — the auction being the method of realizing cash on the 
transaction. Frequently, in the same district, there are auctions — 
sometimes several in the course of a week — of goods such as clothing 
and groceries, which have been obtained at the stores and exchanged 
for drink. The profits of this business are so large that many saloon- 
keepers have been attracted to the district. 

\ Canadian Labor Com., New Brunswick Evidence, p. 407. It is 
by no means always the case that the company stores are inferior to 
outside stores, and many of them are said to carry as large a line of 
goods, and at as reasonable prices. The Hon. Robt. Drummond, 
for eighteen years head of the miners' organization jn Nova Scotia, in- 



292 TJie Bargain Theory of Wages. 



the reward depends, largely, though not altogether, 
on the scale of prices. There is a certain exaltation 
in the sense of freedom and independence which 
comes from the consciousness of possessing money 
in the pocket which that man does not experience 
the payment of whose wages is simply a matter of 
bookkeeping, no matter how reasonable the prices 
in these company stores may be. A priori it might 
almost be argued that the existence of a practical 
monopoly will sooner or later lead to a higher scale 
of prices; and the facts seem to bear out this con- 
tention. I have accumulated a good deal of evidence 
on this point, but the following table is more com- 
prehensive than the statements of any of my corre- 
spondents, and is, moreover, taken from the public 

forms me that the renewed outcry against the truck system in that prov- 
ince during the last two years has come from the storekeepers rather 
than from the miners. The coal fields of Nova Scotia are now con- 
trolled by the Dominion Coal Co. ; and under new management the 
old objectionable features of the system have disappeared, the com- 
pany stores now keeping a larger variety and selling superior goods 
at lower prices than the retail shopkeepers can afford to do ; and the 
result has been an agitation on the part of the storekeepers against the 
system. Mr. Drummond's contention is in part borne out by the fact 
that the most emphatic denunciation of the system is contained in 
the following resolutions, adopted Dec. 2X, i8g6, by the Sydney, C. 
B., Board of Trade, i. i?., in a small town, retail shopkeepers : 

" Whereas the Truck System of paying wages in goods is alarm- 
ingly on the increase in this country, 

" And, whereas the system is buying up the main avenues of wealth 
among the masses of the people, paralyzing internal trade and invest- 
ing the wealth produced through mining in the mining companies to 
the exclusion of the general public, 

"And, whereas, in addition, precedent ia Great Britain and the 
United States of North America instructs us of the pernicious influ- 



Comparative Prices. 293 



records of the evidence of the Canadian Labor Com- 
mission : 

ARTICLE PRICE AT COMPANY'S PRICE AT OUT- 

STORE. SIDE STORE. 

Flour per barrel $6.25 $5.50 

Tea " pound 0.35 0.22 to 30 

Sugar " " 0.09 0.08 

Soap " " 0.07 and 8 0.05 

Butter" " 0.22 to 26 0.20 

Molasses per gallon 0.50 0.40 

Potatoes per bbl o. 80 0.40 to 45 

The witness, on oath, asserted that the articles at 
the outside stores were of the same brand and of as 
good quality as those sold at the company's store.* 

ences of the Truck System upon the social progress of a nation ; and 
upon the steady system of productive industry of all kinds, 

"And, whereas we must have national forethought and refuse to 
sanction the monopoly of wealth produced by any individual, or com- 
pany of individuals, by the supplanting of Canadian currency by 
goods for workmen, 

" Be it therefore resolved, that the Board of Trade draw the atten- 
tion of the Government of Nova Scotia to the grievous conditions 
existing and threatening to exist in the County of Cape Breton, owmg 
to the disappearance of money from circulation by the Truck System, 
and urge the Governor, Council, and Assembly of Nova Scotia to 
enact legislation forbidding the payment of wages in goods." 

However, the protests of the miners, individually, and through 
their associations, are too emphatic to permit us unreservedly to 
adopt Mr. Drummond's view. He claims that the evils of the sys- 
tem, which were exposed in the evidence of the Canadian Labor 
Commission, are things of the past ; and in the mainland of Nova 
Scotia the Truck System has disappeared. Mr. Ochiltree Macdon- 
ald, writing from Cape Breton, insists that the evidence taken ten 
years since is perfectly true for the conditions of to-day ; that, if there 
has been any change, it has been a change for the worse, not for the 
better. Even regarding Cape Breton, the truth probably lies in the 
middle between these conflicting statements. 

* Labor Com. Nova Scotia Evidence, p. 465, and see Nova Scotia 
Evidence y passim. 



294 



The Bargain Theory of Wages. 



The principal argument urged in defense of the 

practice is that, under the actual conditions of winter 

industry in Canada, the stores are a necessity. The 

mines in Cape Breton cannot be worked steadily the 

year through because the ports are closed by the ice. 

Were it not for the willingness and the ability of the 

company to carry their employees through the slack 

winter season there would be great hardship. The 

outside shopkeepers have neither the security nor 

the capital to permit them to give six or nine months 

credit. During four months of the year there is 

practically no employment in the mining districts 

and during that period a debt will be incurred which 

cannot be paid off before the summer is nearly over. 

However long the credit the storekeeper can obtain 

from the wholesale merchant it is not long enough 

for him to wait six or nine months for payment. 

TABLE* SHOWING IRREGULARITY OF EMPLOYMENT 
IN MINING DISTRICT. 



miner's 

NAME. 


TOTAL 

DAYS IN 

YEAR. 


< 


pq 
W 




j4 
S 
< 


% 


i 
1—1 




H 
en 




H 

W 
en 


H 




> 





A 

B 

C 

D 

E 

F 

G 

H 

I 

J 


173 

i88 
207 
192 

204i 
189 

173 
195 

158 
184 


5 
5 
5 
5 
5 
5 
5 
5 
5 
5 


4 


3 
3 

18 

3 
17 
2 
2 
II 
2 
2 


18 

19 

18 
18 
19 
17 
18 

19 

18 
18 


3 
17 
17 

18 

17 

17 
18 

17 
16 

18 


24 

25 
26 
26 

25 
26 

25 
24 

19 

25 


21 
21 
21 
21 
21 
20 
18 
20 
18 
21 


26 
26 
26 
26 
26 
26 
19 
25 
19 
26 


23 
25 
24 
24 

25 
25 
25 
25 
23 
24 


22 
23 
23 
23 
23 
23 
19 
23 
19 
23 


16 
14 
17 
17 
14 
17 
15 
16 

14 
17 


It 
10 
II 
II 
10 
II 
8 

10 
5 
4 



* Canada Labor Com. JVova Scotia Evidence, p. 464 . from the 



The Truck System and the Credit System. 295 



It should be remembered, moreover, that many of 
the objections to the truck system are valid also as 
against the credit system which, in one form or 
other, is an absolute necessity when employment is 
irregular. For the laborer it is quite as hard to 
work his way out of debt to a private storekeeper, 
and probably more worrying because the storekeeper 
has not the same security for his debt. The private 
storekeeper has no means of coercion and must, 
therefore, charge higher prices to cover bad debts. 
The company stores, as a matter of fact, stop wages 
till the debt is reduced to manageable proportions.* 
The effect of the truck system of wages payment on 
the utility of the reward under these circumstances 
will be measured by the difference between credit 
prices and company store prices, and the greater or 

evidence of C. H. Rugby, Supt. of Glace Bay Mining Co. It should 
be stated however that in the opinion of my correspondent Mr. Mac- 
donald there would be no difficulty in supplying the wants of the 
community during the slack season were the company stores closed 
and supports his view by citing the fact that when the Dominion 
Coal Co., purchased the mine at Port Morien (C. B.) the former 
owner abandoned the stores on the ist of October while the new Com- 
pany did not open the stores till the ist of May following. There was 
he asserts neither want nor distress in the district that winter more than 
there had been in previous winters when the stores were open — the 
outside storekeepers being quite able to carry their customers when 
they were no longer subject to the unfair competition of the com- 
pany stores. 

* The Nova Scotia Act against Truck is practically a dead letter 
because it permits contracting out. Frequently the employer does 
not even go to the trouble of requiring the formal order from his men 
which permits him to deduct the store bill from the wages as they 
are earned. 



296 The Bargain Theory of Wages. 



less degree of personal freedom which the victims of 
the two systems retain. The worker's wage, when 
thus paid, is not sweated by the amount of the profits 
of the store ; for a large part of these profits is due to 
superior trading advantages. The profits of the 
stores are without doubt very large ; and one of my 
correspondents affirms that the mine in his district 
is run for the store profits. The Dominion Coal 
Company was offered, it was said, one hundred and 
fifty thousand dollars for the right to run their 
stores; and however philanthropic the company 
might be, men do not go into the market to pur- 
chase charitable organizations. The defenders of 
the system generally protest too much about the 
purity of their motives. There is nothing disgrace- 
ful in a company trying to add to its ordinary profits 
the profits of retail shopkeeping ; the disgrace lies 
in the abuse of the position which the employer 
occupies. 

Of the two important elements which form the 
lower limit of wages the methods of industrial re- 
muneration has the greatest influence on the utility 
of the reward. Less directly, the disutility of labor 
may be increased or diminished by the method of 
payment because the disutility is more than the 
physical energy expended. With cash payments 
the moral elements which enter into the sum of dis- 
utilities are likely to be reduced to a minimum, for 
the laborer in this way obtains the maximum of 
personal freedom. With truck payments the dis- 
utility is increased and the utility of the reward is 



Effect on the Employer s Estimate. 297 



decreased ; but the fighting strength of the laborer 
is so reduced by the system that he is able to offer 
little effective resistance to the lowering of the 
lower limit of wages. Practically the methods of 
remuneration exercise little influence in raising, but 
may exercise considerable influence in reducing, 
the lower limit, thus rendering an actual lower wage 
possible. 

The chief elements of the upper limit — the em- 
ployer's estimate — may be affected by the method 
of industrial remuneration. The efficiency of the 
laborer may be increased or diminished, mainly by 
the effect on the moral conditions of efficiency; and 
the wages fund may be augmented. 

The output of labor is not a mere question of 
strength and knowledge. Willingness and hopeful- 
ness and the disposition to do one's best are almost 
as important as physical and intellectual qualities ; 
and these moral qualities are peculiarly liable to be 
influenced by the manner in which the wages are 
paid. If the laborer is paid promptly, in full and in 
cash, he is much more likely to do his best than 
when his wages are curtailed by all sorts of petty 
exactions and his use of them restricted by all sorts 
of conditions. 

Profit sharing and piece work tend, directly and 
indirectly, to raise the efficiency of the individual 
and, generally also, of all in the establishment, and 
thus tend to permit a higher wage to be paid. Not 
only are the expenses of management and super- 
vision decreased, while there is less waste of material, 



298 The Bargain Theory of Wages. 



but the hope of greater gains acts as a powerful in- 
centive to greater exertion. Workers paid by these 
methods reahze, more or less, that they are being 
treated with justice and consideration, and they are 
less likely than those on time wages to be eye ser- 
vants merely. 

When wages are paid in cash, any feeling of resent- 
ment which the conditions of labor may have caused, 
generally disappears when the wages are paid, un- 
less the wages are very inadequate ; but when the 
control of the employer continues till the last penny 
earned has been expended the laborer continues to 
feel his economic dependence and to feel that there 
is no part of his life which he can call his own. This 
naturally leads to inefificiency, because it tempts the 
laborer to try to get " even " in some way. Pay- 
ment of wages in truck or store orders, or at long 
intervals, and then not up to date, is apt to create 
a sense of irritation which materially reduces effi- 
ciency. Under the extreme forms of the truck sys- 
tem, where the laborer is convinced of the inevit- 
ableness of the tyranny and the injustice, a premium 
is, in effect, placed upon idleness and thriftlessness. 
The laborer who owes the company a large sum 
knows that work is assured to him whenever work 
is going, not because he is a good workman, but be- 
cause the company naturally desires to collect part 
of what he owes them. It is their interest to find 
him work. He believes that he has been cheated 
by higher prices and thinks that his real is not half 
his nominal indebtedness ; and the result is that he 



The Wages Fund. 299 



tries to get even with his employers by cheating 
them with dishonest and scamped work. Even 
should he remain honest, the incentive of hope has 
disappeared. The most efficient workmen are dis- 
couraged by the system, for they quickly learn that 
not efficiency, but indebtedness at the store, is the 
best claim for work when employment is scarce. 
Payment of wages in kind, tends not only to reduce 
efficiency, but also to destroy those qualities which 
promote efficiency and to encourage habits which 
promote inefficiency. 

The wages fund, the resources of the employer for 
the payment of wages, is directly affected by the 
methods of remuneration. The payment of wages 
in cash at the end of each week requires a large 
amount of capital, a larger amount than is required 
by any other method of remuneration to pay the 
same wages. Payment in kind means a large econ- 
omy of capital and allows a larger business to be 
done on a given capital. It reduces payment almost 
entirely to a matter of bookkeeping, and by analogy 
might be called the clearing-house system applied 
to wage payments. Theoretically, it might be said 
that the truck system would lead to larger wages 
because the employer commands a larger capital. 
The employer is able to augment his resources by 
all the long credit he can command from the whole- 
sale supply houses ; and may be able to market a 
large part of his output before these obligations 
have to be met ; and not only is the capital thus 
augmented, but additional profits are earned on the 



300 The Bargain Theory of Wages. 



whole of it. This holds also of deferred payments 
and of payments by the month or the season instead 
of by the week. In many instances the reasons 
which are offered in defense of this practice, against 
which the laborer protests, when stripped of their 
philanthropic and paternalist pretence, amount sim- 
ply to this, that a great saving in capital is thus 
secured. There is not only the saving in office ex- 
penses when the pay sheets are made up at leisure 
once a month instead of once a week; there is also, 
and in the case of large concerns this becomes a very 
important item, the saving of the interest on the 
sum paid out in wages.* When part of the pay- 
ment is withheld for some weeks, as in the case of 
employers who pay on the 20th of the month up to 
the end of the preceding month, or when part is re- 
tained in the employer's hands to the end of the 
year, as, for instance, the dividends in a profit- 
sharing scheme, or indefinitely — e. g., contributions 
to a provident fund — the employer simply retains 
part of the wages as an unsecured investment, and 
practically compels his employees to subscribe to 
the capital required for his business. 

Wages, however, do not necessarily rise because 
the resources of the employer are augmented. The 
wages fund is only one factor in the determination 
of the upper limit ; and the employer is under no 
obligation, physical or moral, to pay out the whole 
of his funds. An increased wages fund simply 
means that higher wages are possible without neces- 

* Ontario Bureau of Statistics, Report, 1886, iv., p. 18. 



Truck System a Rudimentary Credit Instrument. 301 



sitating a readjustment of the reward of the different 
economic factors in production. Moreover, this pos- 
sibility may be at the actual expense of the workers 
themselves. They are made to contribute to the 
wages fund by exactions levied from the wages of 
their past labor. They are denied the right to 
spend the contract price of their labor, when and 
where they choose ; and the probability of increased 
compensation in the future depends on the strength 
of their economic position. Those methods, how- 
ever, which increase the wages fund, tend to reduce 
the laborer's efficiency and to weaken his position 
as a bargainer; and the possible good is generally 
converted into an actual evil. The effect of the truck 
system is, when the other wages factors are taken 
into consideration, to depress rather than to raise 
wages. 

In a new country, where money is scarce and 
banking facilities rare, deferred payments or pay- 
ments in kind may be a practical necessity. Were 
wages paid in cash they would necessarily be low; 
and under these conditions even the truck system 
may be a practical benefit to the working classes. 
But as the country develops, there is less necessity 
for making use of this primitive credit instrument 
and the system is banished from the industrial cen- 
tres to the districts where banking facilities are still 
unprovided, and to industries dependent on the 
seasons, where a long period must elapse before the 
product is marketed. There is something so mean 
in the practice of throwing part of the burden on 



302 The Bargain Theory of Wages. 



the laborer, that so soon as another means of dis- 
tributing liabilities over a longer period is devised, 
every firm which has any sort of credit and some 
measure of self-respect, abandons of its own accord 
the attempt to mulct the wages of its employees. 
Except in the seasonal industries, it is practiced 
now by the " non-profit " employers only — those 
whose credit is bad and who have a hard struggle to 
maintain their position. One of few surviving com- 
pany stores in the province of New Brunswick, out- 
side of the lumber industry, is conducted by a firm 
which has already failed several times; and this in- 
stance may be taken as typical of the condition of 
those firms which retain the system when banking 
facilities are provided. The assistance which such 
firms are able to obtain by this method enables 
them longer to continue the struggle against their 
more fortunate or more competent rivals. The de- 
struction of the system by legislative interference 
would be a death blow to such employers ; though 
it is not possible to agree altogether with a corre- 
spondent of the Ontario Bureau of Statistics in as- 
serting that the abolition of the truck system and 
of deferred payments would place a premium on 
large industry. It would give a certain advantage 
to those who had capital enough for the business 
they had undertaken.* 

* The truck system, however, is both effect and cause of the scar- 
city of money. During the recent agitation in Cape Breton against 
the truck systena it was repeatedly asserted that money is being driven 
out of circulation (see the petition of the Sydney Board of Trade 



Effect on the Bargaining Process. 303 



It remains now to discuss the influence of the 
methods of remuneration on comparative strength 
of employer and employed in the wages bargain 
which determines where between the limits actual 
wages are fixed. The method of remuneration may 
increase or decrease the mobility of labor, may affect 
the capacity for combination and collective bargain- 
ing, and may strengthen or weaken the general 
character of the laborer. 

The mobility of labor depends partly on the 
knowledge the laborer has of the relative conditions 
of labor in his own district and elsewhere. Causes 
which prevent him from acquiring, or even render it 
more difificult for him to acquire, this knowledge in- 

already quoted) ; and Mr. Ochiltree Macdonald stigmatizes the ac- 
quiescence of the individual in the system as a crime against honest 
currency. In many districts trade is reduced almost to the primitive 
form of barter to the great disadvantage of those, farmers for instance, 
who have anything to sell. If these contentions are true a situation 
exists in that district which can be cured by legislation only, enforcing 
the payment of wages in cash without any possibility of contracting 
out. A primitive and vicious credit system seems to have obtained 
such a hold on the community that there is no room for the more re- 
fined credit instruments provided by the banks. It required an eco- 
nomic cataclysm to overthrow the truck system in Newfoundland which 
had been encouraged by an unsound banking system ; and the inter- 
vention of the Canadian banks after the crisis of 1894 has rendered 
it easier to make the necessary departure from a system which had in- 
volved the whole community in ruin. 

The close connection between an inadequate banking system and 
the prevalence of the truck system finds its best illustration in the 
southern states of the American Union. There the truck system has 
attained its fullest sway and there currency is scarcer and banking 
facilities less frequent than in any other section of the country. 



304 The Bargain Theory of Wages. 



terfere with the mobihty of labor. Money wages 
are the calculation form of the reward ; and when 
the reward is not paid in money, it is less easy for 
him to make the comparison. He may not have 
the knowledge or the skill to calculate what the 
wages are even in his own district. Mobility de- 
pends also on freedom from restrictions ; and weekly 
cash payments alone give the laborer full command 
of his resources and leave him free to make what 
use he pleases of them. A system of deferred pay- 
ments ties the laborer to the employment he has. 
To change he must sacrifice the deferred pay. The 
fact that the participant in a profit-sharing scheme 
has no legal right to claim a share in the profits, 
till the financial year is complete, restricts his move- 
ments ; and the benefits of a provident fund can be 
obtained by those only who remain permanently in 
their present employment. When wages are paid 
at infrequent intervals and part of the pay is re- 
tained in the hands of the employer, the intention 
frequently is to restrict the laborer's freedom of 
movement. One iirm posted a notice in its factory 
that " persons leaving the service of the company 
without serving the notice required shall forfeit the 
arrears of pay due to them " * ; and though the action 
would be illegal, and the employees might know it 
to be so, the notice would doubtless have the de- 
sired effect, owing to the fact that it would require 
a costly suit at law to force the employer to pay. 
The laborer who has arrears of pay in the hands of 

* Canadian Labor Commission, Quebec Evidence p. 1301. 



The Mobility of Labor. 305 



his employer has given hostages to the extent of the 
arrears. Frequently, even when the employer is 
honest and law-abiding, he will pay a workman who 
desires to leave before the monthly pay day comes 
round by means of a due-bill which is cashed at a 
discount. In some cases, even, a deduction is made 
from his wages to pay the expenses of securing a 
new workman.* The truck system involves a still 
greater restriction of mobility. When a workman 
has got into debt at the company store, his mobility 
is practically nil till he has worked his way out ; 
and it is said — and it is antecedently probable — that 
the company ofBcials endeavor to keep him in debt 
in order to retain their control over him. 

Trade-unionists are constantly discussing the 
methods of remuneration from their point of view. 
They naturally find the ideal method in weekly cash 
payments. They contend that any other system 
leads to the isolation and consequent weakness of 
the individual worker. They criticise, and if neces- 
sary, agitate against, any method which encourages 
the laborer to deal with his employer directly and 
in his own strength. Piece v/ork and profit sharing 

* Canadian Labor Com., Ontario Evidrtice, p. 1190 : — " They will 
charge him for the passage fee of another man to bring up (to the 
woods) in his place and let him go ; and I have seen some concerns 
not pay him at all. If he wants to go he goes without any payment." 

It was argued before the English Labor Commission that the pay- 
ment of wages to sailors at frequent intervals would increase the 
danger of desertion. The present practice therefore involves, rea- 
sonably enough perhaps, a restriction of the mobility of that class of 
workers. Spyers : Labor Question, p. 200. 



3o6 The Bargain Theory of Wages. 



both, they consider objectionable because in this 
way the laborer is tempted to be disloyal to his class 
by the prospect of extra rewards for himself. Profit 
sharing has indeed been explicitly advocated as a 
method of weakening the power of the unions. 
They do not, as has been so often asserted, object 
to the higher reward of superior efificiency ; but they 
dread the effect of the stimulus to individual exer- 
tion on the solidarity of the working classes; and 
they are rightly of the opinion that the interests of 
all are best secured by union and combination. To 
deferred payments and the truck system they offer 
the most strenuous opposition because by these 
methods the individual worker is made to feel his 
dependence on his employer. Weakness and de- 
pendence even more than the desire for exceptional 
wages are isolating forces; and the objections of the 
unions to these methods is very strong. 

In spite of all that has been said by Carlyle and 
others against the cash nexus, there is no reason 
to doubt that it is the system which promotes the 
best interests of the working classes. Paternalism 
and sentimentalism have been discredited by the ex- 
perience of generations. It is better that the rela- 
tions between employer and employed should be on 
a pure basis of contract and that no margin of in- 
definiteness should remain. What is left to be 
understood is generally left to be misunderstood 
and interpreted against the interests of the weaker. 
Weekly cash payments are best for the working 
classes in almost every way. The employee remains 



Effect on General Economic Character. 307 



his own master when the contract period is over and 
the employer has no right to interfere. Under the 
truck system the laborer is under continuous super- 
vision in his home as well as in the workshop ; and 
one can understand why indignant opponents of the 
system have denounced it as scarcely disguised 
slavery. What is true of the truck system is true 
also, to a less degree, of every method of remunera- 
tion which keeps the laborer dependent on his em- 
ployer after the contract period has expired. This 
continuous supervision and subjection is not con- 
ducive to the building up of strong characters ; and 
the most disastrous effect of these methods is to 
weaken the general character of the laborer as a 
wages bargainer. Trade-unionism is but a substitute 
for character, and the mobility of labor is a result ; 
the character of the laborer is what tells in the wages 
bargain — the determination of where between the 
limits actual wages shall be fixed. 

Weekly payments, according to some who practise 
other methods of remuneration, promote thriftless- 
ness and dissipation and prevent the accumulation 
of property; and one witness before the Canadian 
Labor Commission * claimed that the only difference 
between weekly and fortnightly payments was that 
the men go drunk once a week instead of once a 
fortnight. On the other hand the laborers strongly 
favor weekly payments, preferring, it may be, free- 
dom to compulsory sobriety every alternate Satur- 

* Nova Scotia Evidence, p. 405 ; see also ibia,, p. 427, and New 

Brunswick Evidence, p. 471. 



3o8 The Bargain Theory of Wages. 



day. They indignantly resent the insinuation that 
they are not able to manage their own domestic 
affairs and the miners of Cape Breton insist that 
they are as able to spend their wages as wisely as 
the workmen in Great Britain who must be paid in 
cash.* 

The assumption that the workman cannot manage 
his own affairs weakens his character; and the effect 
of the truck system, which is sometimes justified on 
that ground, is to destroy all self-reliance and self- 
respect and remove all motive to honesty and efifi- 
ciency of work. The truck system, by its injustice, 
makes the worker practise, and justify, all sorts of 
underhand evasions of his contract. Above all it 
promotes thriftlessness and idleness. The Hon. 
Robert Drummond said from his place in the Legis- 
lative Council of Nova Scotia that the system was 
an abomination and a premium on beggary ; and 
elsewhere he declared that it had a " tendency to 
foster thoughtlessness and beggary." This is the 
natural effect of the truck system everywhere. 
Those who run bills at the store are the favorites in 
the factory and the mine. To encourage the others, 
they receive the best places in the mine, and during 
the slack season they are given what work there is 
to be given that they may have an opportunity of 
reducing their debt to the store. The industrious 
and thrifty find that constantly the idle and the dis- 
sipated have the preference. Those who take no 
responsibility for themselves, but run up bills, know- 

* Newspaper report of a meeting at Glace Bay, Nov. 13, 1896. 



TJie Truck System m Nezvfoiuidland. 309 



ing that it is the company's interest to provide them 
with work, are the fortunate ones of the community ; 
and the whole community is demorahzed through 
their influence. 

The economic crisis in Newfoundland in 1894 was 
a striking instance of the complete demoralization 
of a whole community under the truck system. The 
system was of old standing. Nearly a hundred 
years ago the governor of the island tried by an 
edict to suppress it. It was not destroyed, but, 
on the contrary, tightened its grasp on the busi- 
ness of the country. Everyone deplored it, but no 
one could give it up. It promoted dishonesty and 
crime and universal distrust ; but it required an eco- 
nomic disaster to overthrow it. Everyone suffered 
by it, the workmen most of all. He was ground 
between the upper and the nether millstones — the 
fickle sea and the burden of his long-standing debts. 
He could hardly call himself his own, and many a 
Newfoundland fisherman passed from the cradle to 
the grave without ever having seen a piece of money. 
No one really profited by the system, and Black 
Monday, the loth of December, 1894, was the day of 
salvation for the " planter" as well as the fisher- 
man. 

The effect of the truck system on the character of 
the laborer depends altogether on the degree of 
coercion employed. Where no compulsion is used, 
company stores with their superior trading facilities 
might prove almost as great a benefit as the co- 
operative stores. It is generally claimed that the 



310 The Bargain Theory of Wages. 



workman is left free and some employers prefer to 
run the stores for the benefit of the workmen. But 
it is difficult to say what is and is not compulsion. 
Many witnesses before the Canadian Labor Commis- 
sion began by denying that there was any sort of 
compulsion to deal in a company store; and ended 
by admitting that there was discrimination in favor 
of those who dealt there. The prospect of an extra 
profit is a sufficient incentive for the exercise of some 
kind of coercion. The companies, as one man said 
to me, who had experience in running these stores, 
are not in it for their health, and a member of the 
legislature of New Brunswick, whose firm used to 
run several such stores, assured me that where com- 
pulsion in some form is not exercised the stores are 
seldom profitable. 

Compulsion in its most brutal form is rarely 
exercised anywhere now in Canada but in the 
shape of discrimination it still flourishes in Cape 
Breton. Freedom may be absolute in name, but it 
may be little more than freedom to starve. When 
a storekeeper is able to place those who are 
not his customers at a disadvantage in the com- 
petition for work compared with those who deal 
with him he can bring a good deal of pressure to 
bear. The evidence taken by the Canadian Labor 
Commission affords many instances of this indirect 
compulsion. Employers confessed that they did 
prefer those who dealt at the store, that they did 
discriminate in their favor, that unmarried men were 
not so likely to find employment as married men 



Methods of Industrial Remuneration. 3 1 1 



with families who dealt at the store. ''^ Pressure ex- 
ercised in this form is practically compulsion ; and 
few are strong enough to resist it. Circumstances 
naturally determine what amount of compulsion can 
be used. An obstinate man with great social or 
political influence may resist successfully and receive 
his wages in cash; but the greater the necessity of 
the individual the more likely he is to succumb. 

The truck system destroys the freedom of the 
laborer; and with his freedom goes his power of 
resistance. He is no longer master of himself and 
therefore there is less hope that in the trial of 
strength which precedes the determination of the 
wages bargain the victory will lean to his side. 

* Nova Scotia Evidence, p. 317 ; New Brunswick Evidence, p. 
407, et passim. 

FINIS. 




INDEX. 



Autonomous producers, 48-50 



B 



Banking systems, importance of, 
to labor, 159, 301, 302 

Bargain, wages : comparative 
strength of bargainers, 162 ; 
strength of laborers as bar- 
gainers, 164-173 ; disabilities 
of labor, 166 ; trade-union- 
ism as collective bargaining, 
167, 264-270 ; substitutes for 
character in, 168-173 

Booth (Charles), on the organiza- 
tion of dock labor, 20 ; Life 
and Labor of the People, 190, 
215, 219, 220, 244, 247 

Brentano, on wages and output, 
87, 90, 91, 105 ; reconciliation 
of economy of high wages and 
economy of low, 107-109 

Burnet (Mr.), out-of-work sta- 
tistics, 239 



Cairnes (Prof.), non-competing 
groups, 182; disposable fund 
of labor, 185 

Canadian Labor Commission : 
summer and winter wages, 24 ; 
shorter hours and efficiency, 
85 ; effect of immigration on 



wages, 250 ; trade-union mini- 
mum wage, 269 ; the util- 
ity of reward, 285-287; truck 
system and retail stores, 291- 
293 ; truck prices, compara- 
tive, 293 ; irregularity of em- 
ployment in mines, 294, 295 ; 
truck system and mobility, 
305 ; methods of remuneration, 
effect of, on economic char- 
acter, 307 ; truck system and 
compulsion, 311 

Canadian migration, 202, 204, 
206 ; " exodus," 205 ; restric- 
tions on movement, 207 ; Cor- 
liss Bill, 208, note ; tenants and 
owners (diagram), 210-213 ; 
tendency to level wages up, 
215 ; migration by stages, 
220-222 ; distribution of Cana- 
dian immigrants in United 
States, 221, 222 ; seasonal mi- 
gration, 224-226 ; loss of popu- 
lation due to emigration, 235 

Capital : Ricardo's definition, 45 ; 
are wages paid out of? 46, 55- 
69 ; function of, 53 ; as in- 
choate wealth (Prof. Taussig), 

Capitalist, intention of, the de- 
termining factor in wages, 3, 
60 

Census Reports : United Stales, 
194, 195 ; British, 203 ; Cana- 
dian, 215 



313 



114 



Index. 



Charity, indiscriminate, effect of, 

22 

Claimants on the product, satis- 
fied according to economic 
strength, 123 ; no right to a 
share of product inherent in 
any, 124 ; how affected by law 
of substitution, 125 

Commodities, demand for, and 
demand for labor, 66-69 

Competition in Wages-Fund 
Theory, 69 ; according to sec- 
ond version of Productivity 
Theory, 95 

Concomitant variations, method 
of, applied to wages theory, 
24-28, 81 

Contribution of labor to produc- 
tion, not physical but eco- 
nomic, 119 ; confusion of ideas 
of production and distribution, 
123, 126 

Co-operation : of factors in pro- 
duction, 121, 122 ; ideal of, 
150, note 

Corliss Bill, 208, note 

Correspondence between labor 
conditions and wage theories, 3 

Cost of production of labor, 8 ; 
wages as an elem^ent of, g ; of 
living and wages, 24 ; wage 
and labor cost, 105 

D 

Defects of the historical theories 
of wages, 129-135 

Degradation : of wage earning, 
Mr. Sedley Taylor on, 150 ; of 
labor and mobility, 183 

Demand for commodities and the 
demand for labor, 66-69 

Dependence of laborer on em- 
ployer exaggerated in Wages- 
Fund Theory, 59 

Distribution of product accord- 
ing to claims, not according to 
contributions, 123-126 



Disutility of labor, more realized 
the less remote the exertion, 
137 ; makes labor a personal 
commodity, 138 

Domestic servants and mobility, 
I So ; wages of, 289 

Drage (Geof.), trade-unions and 
mobility, 177, 179 

Drum7tiond (\\ow. Robt.) on op- 
position to company stores in 
Nova Scotia, 291, note ; effect 
of truck system on economic 
character, 308 

Dynamic principle required in 
Theory of Wages, 109 ; secured 
directly or indirectly, 109 



E 



Economy of high wages estab- 
lished by Factory Acts, 102 ; 
of low wages a natural infer- 
ence from Mercantilism, 103 ; 
of high wages and of low 
wages reconciled, 107-109 

Efficiency depends on mental 
and moral qualities, 52 ; higher 
wages and, 82, 83 ; output as 
standard of, 88 ; effect of 
trades-unions, 263 ; methods 
of remuneration, 296 

Emigration and trade mobility, 
191-196 ; British Emigrants 
Office on, 191 ; Prof. Mayo- 
Smith, 193 ; Mr. Schloss, 195 ; 
Dr. Geffchen on causes of, 
227, 238 ; J. S. Mill, 230 ; the 
balance-sheet of emigration, 
227-234 ; emigration as a na- 
tional investment, 228-231 ; 
effect of immigration on 
natural increase of United 
States, 231 ; gain by immigra- 
tion not to be accurately meas- 
ured, 233 ; depopulation, 234- 
236 ; British industry and emi- 
gration, 239 ; United States 
industry and immigration, 



Index. 



315 



239-242 ; quality of emi- 
grants, 243, 244 ; emigra- 
tion and the labor market, 
245 ; immigration and wages, 
245-253 ; displacing of native 
laborers, 249 ; wages and 
standard of living of immi- 
grants, 250-253 

Employer's estimate, economic, 
153 ; includes two factors — 
amount of product and re- 
sources of employer, 158 ; 
variations in, 161 ; when non- 
economic, 161 

Evolution, doctrine applied to 
wages theories, 128 

Exodus from Canada, 205, 220- 
222, 235 

Experiment, industrial, involved 
in first version of productivity 
theory, 83-86 



Factory Acts established econ- 
omy of high wages, 102 ; un- 
expected economic justifica- 
tion of, 104 

Family the wage-earning unit, 
28, 251-252 ; Gould on, 250 

Fluctuations of industry, effect 
of, on the standard of comfort, 

Franklm (Benj.), on artificial 
lower limit of wages, 152 ; 
on the population of United 
States, 236 



Gamier, possibility of mobility 
may reduce actual mobility, 
214; produce payments, 287; 
English truck system, 288, note 

Geffche7i (Dr.), agrarian causes 
of emigration, 227 ; causes of 
German emigration, 238 

Conner, the misrepresentations 
of Ricardo, 17 



Gould, Social Condition of Labor ^ 

250 
Gross and net returns, 10 
Clinton, subsistence theory as 
method of raising wages, 7 ; 
on family as wage-earning unit, 
28 ; version of subsistence the- 
ory, 33-40 ; on Walker's re- 
sidual theory, n6 

H 

Hardie (Keir), the standard of 
living and wages, 30 

Hired laborers only considered 
in Wages-Fund Theory, 48 

Hobson, trade-union policy, 278 

Howell, trade-unions and mobil- 
ity, 179 



Income, national, wages paid 
out of, 55 ; of society, who 
disposes of it, 63 

Indifference theory of wages, 
Senior and Brassey on, 103 

Industrial revolution, effects of, 
21, 108 ; conditions and the 
subsistence theory, 21 ; and 
mobility, 199 

Intelligence required for use of 
machinery, 100 

Ireland, temporary migration 
from, 223 ; emigration, 237, 
239 ; diagram opp. 241 

Italy, temporary migration, 224 ; 
causes of emigration from, 
242 ; objection to immigrants 
from, 251 



Labor, varying intensities of, 15 ; 
necessities of, 39 ; not a pas- 
sive factor in wages bargain, 
51 ; dependence of, on em- 
ployer, exaggerated in Wages- 
Fund Theory, 59 ; luxurious 
expenditure and demand for 



3i6 



Index. 



Labor — Continued. 

labor, 69 ; the supply price of, 
73 ; disabilities of, Adam Smith 
on, 75 ; commodity with a sup- 
ply price, 76 ; cost and wages 
cost, 105 ; contribution of, to 
production, 1 19-126 ; two es- 
timates of utility enter into 
determination of value, 135 ; 
disutility of, and remoteness of 
exertion, 137 ; disutility makes 
a personal commodity, 138 ; 
value of, determined between 
two estimates, 140-144 ; dis- 
utility of, increasing or de- 
creasing? 148 ; positive and 
negative disutilities of, 149; 
importance to, of sound bank- 
ing system, 159 ; disposable 
fund of, 185-189 ; not a sim- 
plified case of value, 72, 256, 
257 ; trade-unions and disa- 
bilities of labor, 265-268 ; 
methods of remuneration and 
disutility of, 283 ; methods of 
remuneration and disabilities 
of labor, 303, 307 

Leclaire, 172, 188 

Limits of wages, 140-142, 153- 
158 ; the debatable ground, 
140 ; to pass upper limit re- 
quires distributive readjust- 
ment, 153, 257, 263 ; effect of 
trade-unionism on limits, 263- 
265 

Localization of industry, effect 
on migration, 209, 223 

M 

Macdonald {Mv. C. O.), on truck 
system in Cape Breton, 291 ; 
truck system a crime against 
honest currency, 302, note 

Machinery, intelligence required 
for use of, 100 

Mallock, Labor and the Popular 
Welfare, 100 ; application of 
method of residue, 123 



Malthus, influence of, on de- 
velopment of Wages-Fund 
Theory, 46 

Marginal laborer, Gunton and 
Marshall on the, 33-35 

Market and natural wages, ac- 
cording to Ricardo, 41 

Marshall (Prof.), on marginal 
laborer, 35 ; Mill's theory of 
distribution, 71, note ; trade 
mobility, 18 1 ; on strikes, 280 

McCulloch, trade mobility and 
wages, 196 

Mercantilism, influence of, on 
wages theoiy, 103 

Metayer system, in United 
States, 288, note 

Method of concomitant varia- 
tions, 24, 81-83 ; of residues, 
109-119 

Migration and emigration, vol- 
umes compared, 201-203 ! ^ 
labor factor of decreasing im- 
portance, 203-215 ; British 
Census Report, on, 203, note ; 
Prof. Wilcox on, 204 ; Cana- 
dian migration, 205, 206 ; 
modern restrictions, 207 ; Cor- 
liss Bill, 208, note ; causes of 
decline, 209, 213-215; prop- 
erty owning, effect of, on, 209- 
213; possibility of, has levelled 
up wages, 213 ; in Ontario and 
Quebec, 215 ; an economic 
movement, 215 ; of women, 
216 ; an adult movement, 217 ; 
law of migration by stages, 
218-222 ; temporary and sea- 
sonal, 223-226 

Milly recantation of the Wages- 
Fund Theory, 4 ; treatment of 
particular wages, 44 ; attitude 
of, towards economic history, 
70 ; regards labor as the com- 
modity, 70 ; theory of distribu- 
tion. Prof. Marshall on, 71, 
note ; disutility of labor, 149 

Minimum of subsistence, physio- 
logical and industrial, 17 ; the 



Index. 



1^7 



standard of living as minimum 
wages, 40 
Mobility of labor, A. Smith on, 
174, 1S2 ; Dr. Smart, 175; 
Prof. Cairnes, 182, 1S5 ; neces- 
sary postulate of Wages-Fund 
Theory, 177 ; trade-unions 
and, 177-180 ; ethical objec- 
tions to, Howell on, 179; trade 
mobility and place mobility, 
181 ; trade mobility and degra- 
dation of labor, 183 ; tendency 
of place mobility to promote 
trade mobility, i8y-i96 ; in- 
fluence of Industrial Revolu- 
tion on, 199, 230 

N 

Necessities of the laborer, 39, 

151, 266 
Net return, does labor receive ? 

12-15 

Nicholson, on profit-sharing, 100, 
note ; on strikes, 280 

O 

Ontario: Bureau of Statistics, 210, 
287, 300 ; migration from, 215 

Output, and wages, Brentano on, 
87 ; as the standard of effi- 
ciency, 88-S9, and wages, 
comparative statistics of, 90, 
91 ; increment of, due to labor, 
96 ; proportion going to labor 
diminishing, 97-100 ; and 
labor, Mr. Malloch on, 100 

Ownership of the wages fund 
57-64 



Piece work, trade-unions and, 
269 ; and disutility of labor, 
282 ; piece wages in United 
States, 283 ; effect on effi- 
ciency, 297-299 

Position of the laborer, indepen- 
dence exaggerated by Produc- 
tivity Theory, 4 ; Wages-Fund 



Theory, 59 ; contribution to 
production, 121 

Potter (Miss Beatrice), on em- 
ployer's estimate, 162 

Product of industry due to co- 
operation, 121-123 

Product sharing, Mr. Garnier on, 
287-289 ; metayer system in 
United States and Canada, 
288, note 

Production an extended process, 
53^55 i contribution of labor 
to, not physical but economic, 
1 19-126 

Productivity Theory and the in- 
dependence of labor, 4 ; two 
versions of, 81 ; the first ver- 
sion involves an industrial ex- 
periment, 83 ; the second ver- 
sion relies on competition, 95 ; 
neglects second factor in em- 
ployer's estimate, 158 

Profit-sharing, Prof. Nicholson 
on, 100, note ; attitude of ad- 
vocates to wage system, 150; 
attitude of trade-unionism to- 
wards, 269 ; and disutility of 
labor, 2S2 ; effect on efficiency, 
297-299 

Property owning and mobility, 
209-213 

Protective policy, aim of, 201, 
note 

Public opinion as a factor in 
wages bargain, 171 

R 

Ravensfein' s law of migration by 
stages, 218-222 

Remuneration, industrial, meth- 
ods of, 166, chap. viii. 

Residues, method of, in economic 
theory, 109-119 ; rent as a 
residual share, 110-113 ; profits 
as a residual share, 113 ; in 
economics implies false theory 
of economic history, 113 ; sanc- 
tioned by Adam Smith, 114; 



318 



Index. 



wages as residual, 115 ; Prof. 
Walker on wages as residual, 
115-117; Mr. Mallock's ap- 
plication of, 123 

Restrictions on mobility, 207, 
208 ; Corliss Bill and contract 
labor law, 208, note ; military, 
238 

Ricardo, exceptions to law of 
natural wages, 41 ; definition 
of capital, 45 ; standard, Mr. 
Conner explains, 17 ; on rent 
and profits as residual, 110-113 

Roscher, on Wages Fund, 159 



Schloss, Methods of Industrial 
Remuneration^ 150, 281 ; trade 
mobility, 195 ; lump-of-work 
fallacy, 263 

Senior and the Factory Acts, 
102 ; and Lord Brassey, indif- 
ference theory of wages, 103 

Smart (Dr.), the mobility of la- 
bor, 176; on value, 254, 255 

Smith (Adam), the theory of dis- 
tribution, 7 ; criticism of sub- 
sistence theory, 23 ; summer 
and winter wages, 23 ; wages 
paid out of capital, 53 ; disa- 
bilities of labor, 75 ; immo- 
bility of labor, 175, 182 

Smith (H. Llewellyn), Booth's 
Life and Labor, 190, 215, 220 

Smith (Prof. Mayo-), see emigra- 
tion and migration 

Standard, of subsistence and the 
principle of population, 18 ; of 
comfort and the fluctuations of 
industry, 19 ; of efficiency out- 
put as, 88-90 

Substitution, law of, as effecting 
claimants in distribution, 123, 
125, 156, 158 

Summer and winter wages, in 
Canada, 23, note ; Adam Smith 
on, 23 



Supply of labor not determinate, 
47-51 ; supply price of labor, 
73-76 



Taussig (Prof.), on capital, 56 

Taylor (Sedley), the degradation 
of the wage earner, 150 

Trade-unionism as collective bar- 
gaining, 167, 268-271 ; as a 
substitute for character, 168 ; 
fallacy of luinp of work, 89, 
263 ; effect on limits of wages, 
264 ; mainly a method of bar- 
gaining, 264 ; object of trade- 
union policy, 267 ; legal locus 
standi, 270; numerical strength, 
271, note; the problem of dis- 
cipline, 272 ; must rely mainly 
on moral forces, 274 ; obstacles 
in the way of discipline, 275- 
277 ; cardinal maxim of policy, 
277, 278 ; balance-sheet of a 
strike, 279 ; its ideal method 
of remuneration, 305 

Truck system, 160, 289-296 ; the 
sweated wage, 290 ; compara- 
tive prices, 293 ; and irregu- 
larity of employment, 294 ; 
compared with credit system, 
295 ; and wages fund, 299-303; 
and mobility, 305 ; effect on 
economic character, 303, 311 ; 
and financial conditions, 302, 
note, 309 



U 



United States, wages and the cost 
of living, 25 ; share allotted to 
labor, 98 ; law of substitution 
in, 125 ; Benjamin Franklin on 
law of wages in, 152 ; Census 
Report, 194, 195; Prof. Wilcox 
on immigration, 204 ; Cana- 
dian immigrants into, 205, 221 ; 
Corliss Bill, 208, note ; tem- 
porary immigrants, 224-226 j 



hidex. 



319 



migration and natural rate 
of increase, 231 ; immigration 
and wages, 245-253 ; piece 
wages in, 283 ; metayer system 
in, 28S, note 

V 

Value, theory of, 72, note, 254, 

257 ; labor a complicated case, 

72, 256, 257 
Variations in subsistence theory, 

6 ; in intensity of labor, 15 ; 

in the employer's estimate, 161 

W 

Wages, theories, development of, 
3 ; as an element of cost, 9 ; 
a gross return, 11 ; and the cost 
of living, 24, 25 ; of women, 25- 
2S ; the family the wage-earn- 
ing unit, 27, 251, 252 ; gener- 
al, and per head, 42 ; source of 
wages, 45, 46, 53-69 ; paid out 
of income, 55, 56, and output, 
Brentano on, 87 ; and output, 
comparative statistics, 88; econ- 
omy of high and economy of 
low, 101-108 ; the indifference 
theory of, 103 ; cost and labor 
cost, 105 ; dynamic principle 
thought necessary in theory of, 
109 ; method of residues ap- 
plied to theory of, 107-119; 
doctrine of evolution and criti- 
cism of theories of, 128 ; de- 
fects of the historic theories, 
129-135 ; Mr. Sedley Taylor 
on degradation in earning, 
150; artiticial lower limit 
to, Benjamin Franklin on, 
152 ; bargaining, influence of 
legii^lation and public opinion 
on, 117, 173 ; and trade mo- 
bility, 183 ; McCulloch on, 
196 ; levelled up by effect of 



property owning, 209-213 ; un- 
proved communications, 213- 
215 ; piece wages, 283 ; weekly 
payments of, 284 ; deferred 
payment of, 286 
Wages Fund : and Capital, 53-55; 
ownership of, 57 ; not abso- 
lutely fixed and predetermined, 
60-69 > should include credit, 
61 ; amount of, 65 ; and luxu- 
rious expenditures, 69 ; a 
" Zwischen -reservoir," 159; 
increased by some methods of 
remuneration, 159, 297-303 
Wages-F\ind Theory, Mill's re- 
cantation of, 4 ; problem of, 
43 ; formulated in three propo- 
sitions, 47, 53, 69 ; considers 
hired labor only, 48 ; a theory 
mainly of the demand for labor, 
52; and competition, 69 ; 
crilics usually consider money 
wages only, 79 ; and rent as 
residual share, 112; a recon- 
ciliation of subsistence and pro- 
ductivity theories, 133 ; the 
fundamental error of, 134 ; but 
the most adequate of the his- 
toric theories, 135 ; over-em- 
phasizes the second element of 
employer's estimate, 158 

Walker (Prof.), residual method 
applied to wage theory, 115- 
118 ; on mobility, 174, 188, 
189 

Wicks (Mr. F.), on trade-unions, 
271, note 

Wilcox (Prof.), on migration, 204 

Women, wages of, 25-28 ; migra- 
tion of, 216; influence on trade- 
unionism, 275 

Weight (Carroll), wages and cost 
of living in United States, 25 ; 
piece wages in United States, 
2S3 



SOUND MONEY. 

THE SILVER SITUATION IN THE UNITED STATES. By 

F, W. Taussig, LL.B,, Ph.D., Professor of Political Economy in 
Harvard University; author of "The Tariff History of the United 
States." (No. 74 in the Questions of the Day Series.) Second Edition. 

Revised and enlarged. 8vo, cloth $ 75 

"We do not hesitate to say that this book is in all respects as excellent as it is oppor- 
tune. It is extremely concise in statement, and deserves to be read by the learned as well 
as by the ignorant, while the times should insure it the widest circulation." — New York 
Even ing Post. 

CORPORATION FINANCE. By Thomas L. Greene, Auditor of 

the Manhattan Trust Co. A Study of the Principles and Methods of 

the Management of the Finances of Corporations in the United States, 

with special reference to the valuation of corporation securities. 8vo, 

$1 25 

"The author's practical and theoretical knowledge has enabled him to prepare an in- 
structive book, useful alike to the student at college and the every-day man of affairs. He 
writes in a careful, discriminatins; way, is conservative in expression and views, and does 
not aim at effects, but presents his statements and arguments in a plain, straightforward 
way. We imagine few competent critics will take issue with him on any material points 
in his discussions," — The Financial Chronicle. 

REAL BI-METALLISM ; or. True Coin versus False Coin. A Les- 

son for " Coin's Financial School." By Everett P. Wheeler, author 

of " The Modern Law of Carriers." (Question of the Day Series, No. 

84.) Illustrated. Paper, 40 cts. ; cloth . . . • $ 75 

" Mr. Wheeler has a firm and comprehensive grasp of his subject, and in a few com. 
pact chapters he lays bare ' Coin's ' sophistries and misstatements, and effectually demon- 
strates the folly and danger of independent free silver coinage at the present ratio." — 
Commercial Advertiser^ New York. 

A HISTORY OF MODERN BANKS OF ISSUE. With an Ac- 
count of the Economic Crises of the Present Century. By Charles A. 
CONANT. 8vo $3 00 

"We can only express our hearty appreciation of the book as a whole. It is ex- 
tremely interesting. It cannot but be useful, and to us it is very cheering. Mr. Conant's 
book, from beginning to end, is a proof that sound currency is evolved necessarily from 
the progress of an industrial and commercial people. We have unhesitating, unfaltering 
faith in the progress of the people of our country in industry and commerce, and that 
sound currency will therefrom be evolved."— A^. V. Times. 

THE HISTORY OF CURRENCY (1252 to 1894). Being an Ac- 
count of the Gold and Silver Monies and Monetary Standard of Europe 
and America together with an Examination of the Effects of Currency 
and Exchange Phenomena on Commercial and National Progress and 
Weil-Being. By W. A., Shaw M. A. 8vo . . . net $3 75 

" The present bimetallic controversy has given birth to nothing more profound and 
convincing. , . . Mr. Shaw's work possesses a permanent historical interest far trans- 
cending the present battle of the standards." — N. Y. Nation. 



G. P. PUTNAM'S SONS 

NEW YORK AND LONDON 



SOUND MONEY. 

THIRTY YEARS OF AMERICAN FINANCE. A Short Finan- 
cial History of the Government and People of the United States since 
the Civil War 1865-1896. By Alexander Dana Noyes. i2mo 

SOUND MONEY MONOGRAPHS. By William C. Cornwell, 

President of the City Bank, Buffalo, author of ' ' The Currency and the 

Banking Law of Canada". 8vo ...... $l CX) 

'■ The author deals intelligently with the origin of money, fiat money and legal tender, 
the result of legal tender and the remedy, and international coinage." — Boston Globe. 

MONETARY PROBLEMS AND REFORMS. By Charles H. 

Swan, Jr. (No. 91 in Question of the Day Series.) 8vo . % 75 

" Mr. Swan's discussion of the subject is clear, concise, and sound, and constitutes a 
valuable addition to the literature of the subject. — St. Louis Globe-Democrat. 

THE NATURAL LAW OF MONEY. The successive steps in the 
growth of Money traced from the days of Barter to the Introduction of 
the Modern Clearing-house, and Monetary Principles examined in their 
relation to Past and Present Legislation. By William Brough. 
i2mo, cloth, $1 CX) 

" The author's style is clear and concise, and he gives a great deal of valuable infor- 
mation well adapted to the understanding of the general reader in a brief compass."— 
Boston Saturday Eve. Gazette. 

A HISTORY OF MONEY AND PRICES. Being an Inquiry into 
their Relations from the Thirteenth Century to the Present Time. By 
J. SCHOENHOF ; author of "The Economy of High Wages," etc. 
(No. 85 in the Questions of the Day Series.) i2mo . . $1 50 

"Mr. Schoenhof's book, 'Money and Prices,' is a positive and most valuable con- 
tribution to economic literature inasmuch as_ it supplies, in a clear and popular manner, 
just the information necessary for the formation of correct opinions respecting the vexed 
problem of prices, and especially respecting their relation to monetary changes. The ex- 
amination ought to be more an essential of every high educational system." — David A. 
Wells. 

PRINCIPLES AND PRACTICE OF FINANCE. A Practical 
Guide for Bankers, Merchants, and Lawyers, together with a Summary 
of the National and State Banking Laws, and the Legal Rates of In- 
terest, Tables of Foreign Coins, and a Glossary of Commercial and 
Financial Terms. By Edward Carroll, Jr. 8vo, cloth . $1 75 

" Mr. Carroll's volume aims to be a practical guide for bankers, merchants, and ]aw- 
yers, and certainly does give a great deal of information which they ought to know. . . , 
It is refreshing to get a book on finance which is not given up to the discussion of the 
•writer's personal views on the current questions of financial agitation. . . . These 
subjects will soon fail to interest, for in the nature of things, they will soon be settled. 
They are too practical to remain open. But Mr. Carroll's volume will be valuable long 
after those matters have been disposed of. It is well written, and the index makes it a 
convenient book of reference." — Chicago Inter-Ocean . 



G. P. PUTNAM'S SONS 

NEW YORK AND LONDON 



